Aviation: Economic Crisis, Climate Crisis—How Should We Handle Emergencies?

This article is from our "Décryptage Mobilité" newsletter. To receive future articles by email as soon as they are published, Subscribe now. By Nicolas Meunier – Consultant at Carbone 4

Commercial aviation is on its last legs. It follows economic cycles lasting about ten years, according to industry insiders. This holds true even today: after the 2008 crisis, commercial aviation resumed its growth unhindered, and has continued to do so until now. But the coronavirus is already shaping up to be an unprecedented crisis: European airlines have cut approximately 90% of their flight schedules, as have other foreign carriers (Emirates, Singapore Airlines). IATA, the International Air Transport Association, updates its outlook regularly, revising its estimate of the economic impact from $30 billion on February 21 to $250 billion on March 24 [1] [2]. It has also warned that Three-quarters of airlines have less than 3 months' worth of cash on hand, and many of them are expected to go bankrupt within a few weeks if nothing is done. [3] The sector is therefore in an unprecedented crisis, with virtually no resilience. Faced with this catastrophe, some are highlighting the positive aspects: while it seemed impossible to curb the runaway growth of air traffic despite its impact on the climate, now planes are grounded.

No one expected such a quick “solution”: therefore, no aid is expected to be offered to this carbon-intensive industry. This is a simplistic solution to the problem: commercial aviation can have a place in a low-carbon world, provided traffic remains moderate, and we must obviously hope for a sustainable transition rather than a devastating—albeit temporary—crisis. On the other hand, this overlooks the social consequences that could result from a wave of bankruptcies among airlines and then their suppliers, leading to the sudden unemployment of several million people (10 million direct jobs, 65 million including indirect jobs, according to ATAG [4]). We must support the sector as it undergoes a transition, not decapitate it in the midst of a health and economic crisis. Conversely, other voices—such as that of the CEO of Air France-KLM [5] or the Union of French Airports [6]—are calling for the elimination of numerous taxes imposed on the aviation industry, including (especially?) environmental taxes. Here, too, is lowering prices to stimulate demand—since most taxes are paid not directly by the airlines but by passengers—really a way to increase the sector’s resilience?

Should we prioritize an economic recovery that allows us to “go back to the way things were”? That would be ignoring environmental issues. an issue that has weighed heavily on the air travel industry for several years, even as climate change poses a systemic risk capable of disrupting the economy to an even greater extent than the current health crisis. The urgent need is indeed to support airlines, both to help them survive the crisis and to prepare for the future. That is what two think tanks in the United Kingdom—the IPPR (Institute for Public Policy Research) and Common Wealth—are proposing, which recommend that the government tie its bailout to strict conditions regarding decarbonization, on workers' rights and on taxation in the sector [7]. The NGO Transport&Environment also supports higher taxes on air travel, particularly on fuel, as a condition for the bailout [8]. Across the Atlantic, eight U.S. Democratic senators have called for link carbon emissions reductions to a relief plan for airlines [9].

These statements are still rather vague at this point, but they clearly demonstrate that the climate emergency has not been forgotten and that it should play a central role in the sector’s upcoming recovery. Furthermore, the airline industry is known for its intensely competitive environment, which can even deprive certain players of their freedom to set their own strategies: this is evidenced by the many unprofitable flights that are kept in operation to prevent competitors from gaining a foothold, as well as by fare wars. During this crisis, everything has come to a standstill: This is an unprecedented opportunity to thoroughly review current practices and regulations in order to ensure a fresh start that is consistent with the sector’s 2°C goals.. After the September 11, 2001, attacks, many companies had to restructure and file for “Chapter 11” (a reference to the U.S. law that allows a bankrupt company to freeze its debts while it reorganizes), Why not use this forced hiatus to file for an environmental “Chapter 11”? As we mentioned in a previous article, the aviation industry has set itself an ambitious but unachievable climate goal while maintaining its “planned” growth—as acknowledged by the ICAO, the UN agency that regulates international aviation. This devastating health crisis is likely to lead to a profound economic restructuring of the sector; however, it also offers the opportunity to chart a realistic 2°C roadmap for the first time. Will governments seize this opportunity? For now, the United States has already launched its bailout plan… without any environmental conditions [10].

Article written by Nicolas Meunier (Consultant)

Sources: [1] IATA [2] IATA [3] IATA [4] AviationBenefits [5] Euractiv [6] The Tribune [7] BusinessGreen [8] Transportation & Environment [9] TheHill [10] Reuters