Tuesday, June 3, 2008

Airlines should not be bailed out again

The International Air Transport Association (IATA), representing most airline companies in the world, just adopted a resolution calling all governments to help this industry. It is asking for lower taxes, more cross-border merger flexibility, lower wages and lower fuel costs. But why should governments bother?

Airlines have at numerous times received substantial help from governments. Some can be justified, like when the US government curtailed air traffic after 9/11. But the fact that this industry has overcapacity and cannot sell tickets to cover its own costs calls for a market correction (bankruptcies, reducing capacity) not government intervention. This industry is already subsidized (explicitly: security agencies, tax breaks; and implicitly: gas priced lower than what externatilities would call for), it should not ask for more.

Is it of national interest to have this much capacity in the air? No. Is it of national interest to have some airlines? Possibly, but this does not mean the whole industry should be bailed out.

1 comment:

Anonymous said...

Historically, the cost of flying has gone down (with a bump now). I am not against flying being more expensive.