Will the COVID-19 crisis mark a turning point for the transportation sector?

This article was originally published in our "Décryptage Mobilité" newsletter. To receive future articles by email as soon as they are published, Subscribe now. By Nicolas Meunier – Consultant

The COVID-19 crisis continues, and while the public health situation is improving in France, the economic consequences of the lockdown are becoming more apparent with each passing day. A true cornerstone of the globalization of trade in goods and the movement of people, the transportation sector is one of the hardest hit by the pandemic: first, of course, due to the widespread restrictions on movement during lockdown, but also—as restrictions are lifted—because of the health and safety conditions under which the recovery must take place. It is worth noting that Some figures on the decline in transportation during the lockdown to gauge the scale of the phenomenon : In the aviation sector, the number of flights worldwide fell by 58% last April compared to April 2019, and by 83% in Western Europe in particular, according to OAG [1]. On the rail side, the SNCF reported that only 6% of TGVs were in service, 15% of TER trains, and 20 to 25% of trains in the Île-de-France region [2]. Finally, car sales in France plummeted by 96% last month [3]. The only silver lining: although consolidated figures are not yet available, bicycle sales appear to be skyrocketing.

Now that the lockdown is over, The conditions for recovery are just as challenging for the transportation sector, particularly for public transit companies, whose business models are being affected in terms of both supply and demand. On the one hand, workers in the sector are affected by childcare constraints and the fear of ending the lockdown too soon; on the other hand, health protocols pose a real challenge for certain transit systems that must sustain the “every other seat” business model over the long term. On the demand side, we see that the first weeks of easing lockdown restrictions have been marked by a sharp decline in public transit ridership, due to the same factors affecting workers in the sector, but also undoubtedly because the trial of remote work has gained supporters, at least during this transitional period when we are still being asked to limit our travel.

Conversely, the recovery appears to be characterized by extensive use of individual modes of transportation, such as cars and bicycles, with very different environmental impacts depending on which one proves more successful. This economic slump will be accompanied by major challenges for companies in the sector, challenges to which the government is responding with two types of support: one-time recovery plans to overcome the short-term crisis in the coming weeks and months, and stimulus plans for the second half of 2020. While French ministers, as well as the President of the European Commission, have reiterated that The stimulus plan must be consistent with our climate goals, it is appropriate to to examine the nature of these public subsidies and the future of transportation that they shape.

Let's first look at the short-term aid measures designed to help overcome the crisis, apart from short-time work measures and deferrals or even exemptions from social security contributions and taxes—measures that go beyond the transportation sector alone (even though there are tax exemptions specific to the aviation sector). The government has concluded a aid in the form of €7 billion in loans to Air France, including €3 billion for the Air France-KLM Group, which may not be repaid but reinvested in a likely recapitalization of the group in 2021 [4]. For Renault has received a €5 billion government-guaranteed loan which was granted [5]. Conversely, As for the rail sector, the possibility of a bailout plan for the SNCF is being considered, but with few details and no firm commitment for the time being [6]. Finally, let us mention the cycling plan, with a budget of 20 million euros, aimed at encouraging cycling as lockdown restrictions are lifted, notably through a 50-euro subsidy for bicycle repairs [7]. How can we explain such a difference in treatment between carbon-intensive and low-carbon transportation?? The contrast is all the more striking given that on April 13, the President of the Republic called for "to develop a strategy that incorporates a long-term perspective, the ability to plan, low-carbon practices, prevention, and resilience".

This is because the government wants to save the French flagship companies Air France and Renault, even though they face fierce international competition, unlike the SNCF, other urban public transportation providers, and, of course, active modes of transportation such as cycling, which are less exposed to international markets because they are domestic in nature. But Does keeping an eye on the competition justify ignoring the ecological transition? The The government did, however, emphasize Air France's commitment to environmental issues in the face of media pressure, with the goal of making it “the most environmentally friendly company on the planet.” Except that, in reality, Bruno Le Maire is putting a lot of emphasis on recycling, reiterating commitments already made before the crisis, such as the replacement of the medium-haul fleet with A220s, halving carbon intensity per passenger by 2030 [8], and setting the share of alternative fuels at 2% by 2025 [9]. The only new commitments relate to the metropolitan network, which has been operating at a structural deficit for several years (-€200 million in 2019). Its reduction thus addresses an economic challenge in which the environmental benefits appear to be merely a side benefit [10].

With regard to the automotive industry, the Minister of the Economy wants production to be relocated to France in exchange for financial aid [11]. This relocation—let’s be honest— may at first glance seem to contradict the call for the industry to become more environmentally friendly : In fact, French automakers have kept production of vehicles with higher value-added—particularly SUVs, which are among the vehicles with the highest carbon emissions—in France, while relocating production of city cars and compact sedans, which are more fuel-efficient. As for electric vehicles—whose use in France would help reduce transportation emissions—the component with the highest value-added—the battery—is currently produced almost exclusively in China, Japan, or South Korea. It is therefore difficult to support current French production while decarbonizing the industry. Now let's talk the terms of the takeover, starting with the situation in public transportation: in light of the health challenges posed by the pandemic, Only every other seat is permitted on all forms of public transportation… with the exception of air travel.

The reason cited by the Secretary of State for Transportation is the airlines’ economic viability, even while acknowledging that the SNCF will lose money as a result of social distancing measures [12]. This difference in treatment can once again be explained by the difference in competitive situations: restoring Air France’s finances appears to be a higher priority in order to compete on equal footing with foreign airlines, but is less important for the SNCF, which still enjoys a virtual monopoly. Torn between competitive considerations and environmental concerns, the French government has so far prioritized the former over the latter in this crisis. However, all modes of transportation are struggling, and The upcoming stimulus plan could be a unique opportunity to accelerate the climate transition in the transportation sector by setting in motion a long-term momentum aligned with our climate goals. This would be achieved through three key measures:

1. Promote low-carbon transportation;
2. Developing industries of the future;
3. Facilitate the transition of carbon-intensive transportation industries.

To fuel the discussion, there is no shortage of ideas, and reports abound—such as those by the NGOs FNH and Transport & Environment, or the one recently published by the CFDT union [13]. It is desirable to support the use of low-carbon modes of transportation by developing infrastructure for cycling and public transportation, for example, or by boosting the rail and river freight sectors. Let's look at two concrete examples: one a more substantial investment in the cycling plan – The FNH is proposing a fund 25 times larger than 500 M€ [13], and a directing subsidies for the automotive sector toward vehicles that are genuinely more carbon-efficient (electric or simply less powerful and lighter) would make it possible to combine an economic recovery with a shift toward a more sustainable path.

Regarding the automotive industry, Still, we will be wary of a conversion incentive that is too broad which could artificially increase demand for imported internal-combustion vehicles, which runs counter to the two principles of energy transition and relocalization. At the same time, we must facilitate the emergence of future-oriented industrial sectors, such as the production of batteries for electric vehicles or sustainable alternative fuels for the aviation industry, rather than funding the continuation of activities identical to those of the past. And For the aerospace and automotive sectors, it seems imperative to conduct a thorough analysis to envision and evolve business models toward operations that are far less dependent on fossil fuels: What does decarbonization mean in practical terms for corporate strategy, particularly with regard to the transition of skills and jobs?

The government must support and facilitate this transition away from carbon-intensive modes of transportation. While the government recently published its new version of the National Low-Carbon Strategy (SNBC), which is less ambitious than the previous one in terms of medium-term climate efforts, It is time to ensure consistency between our goals and the path to achieving them. Therefore, we must support the transportation sector as a whole, beyond competitive considerations, from a short- and medium-term social perspective: 2050 is fast approaching, and its foundations are being laid today. Bruno Le Maire plans to announce a stimulus plan for the automotive industry within two weeks, and for the aerospace industry by July 1, reiterating that "We must use this crisis as a catalyst to accelerate the ecological transition.". Will these plans be consistent with the SNBC, as urged by the High Council for Climate?

Sources: [1] OAG [2] Public Sénat [3] AutoPlus [4] The Tribune [5] Argus [6] France24 [7] Le Monde [8] Air France [9] Ministry of Ecological and Solidarity Transition [10] The Tribune [11] Capital [12] Le Journal du Dimanche [13] AEF Info [14] Franceinfo