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Airline bailouts 'should see ancillary charges curtailed'

Tough conditions proposed for carriers by influential US think-tank amid crisis talks

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A family wear protective face masks while carrying luggage at the Ronald Reagan Airport in Arlington, Virginia

A family wear protective face masks while carrying luggage at the Ronald Reagan Airport in Arlington, Virginia

Bloomberg

A family wear protective face masks while carrying luggage at the Ronald Reagan Airport in Arlington, Virginia

ANY bailout of airlines in the US should require carriers to limit ancillary fees including baggage and flight change charges, the well-regarded Brookings Institution think-tank in Washington DC has argued.

It also contends that any direct financial assistance should trigger a limit on airline stock buybacks that funnel profits to shareholders.

Both European and US carriers have raised the prospect that the airline industry might only survive the current crisis with substantial state aid injections.

If strings such as those proposed by the Brookings Institution were attached to such bailouts in Europe, it might dramatically alter the DNA of low-cost carriers like Ryanair and Easyjet if they sought help - and also have a major impact on other airlines across the region, from Aer Lingus to Lufthansa.

Airlines have grounded large parts of their fleets in response to a slump in travel demand because of the spread of the coronavirus and border restrictions imposed by countries all over the world.

Following the 2001 New York terror attacks, there was limited state aid given to European carriers.

It included €55m in emergency aid given by France to its airlines, a €125m bridging loan from the Belgian government to Sabena, and €650m given to Swissair.

This time around, given the growth in scale and importance of the aviation industry over the past two decades, and the more damaging impact on the sector the coronavirus is having, any bailouts would almost certainly have to be of a very different and vastly bigger nature.

Analysts at the Brookings Institution said in a report that airlines in the US should be bailed out, but on taxpayers' terms.

"Aviation is essential infrastructure, creating untold benefits for the entire economy," they said.

They added that following the 9/11 terrorist attacks in 2001, US airlines received $15bn (€14bn) in loans and grants from the government - equivalent to about $21bn today. While airlines' financial positions were still depressed a year later, the sector eventually rebounded. Without federal financial backing, the analysts said it was difficult to know how bad the situation could have been.

From a global point of view, airlines returned to profit in 2006 after 9/11.

They argued that in the current environment, the US government could "negotiate from a position of strength".

US carriers have called for a $50bn bailout, comprising $25bn in grants and $25bn in low-interest loans. They also want tax relief in the form of a return in $4bn in taxes already paid.

"Airlines, shippers and airports essentially want free insurance, either through grants or low-cost loans," the analysts at the Brookings Institution said.

"If the government offers support, federal leaders have a responsibility to extract concessions on the behalf of taxpayers who foot the bill."

Some US politicians and unions are also pushing for bailout rules that would ensure any funds made available are not used for CEO compensation, or for share buybacks.

The Brookings Institution has argued that airline bailouts in the US should:

- Include input from customer rights groups to represent taxpayers;

- Comprise loans and not grants;

- Result in a moratorium on share buybacks;

- Limit the ancillary fees that airlines can charge;

- Force airlines to create a benefit pool for workers for the next crisis.

Ryanair generated €2.43bn from the ancillaries in its 2019 financial year.

That included revenue from the sale of items and services ranging from beverages to travel insurance.

That was a 21pc increase on the previous financial year, and the figure represented about 32pc of the airline's total €7.7bn in revenue.

If any European bailout conditions include more stringent rules around ancillary charges or buybacks, it could have a notable impact on future airline profitability and their attractiveness to investors.

Irish Independent