Coronavirus-hit airlines in push for divisive route subsidies

Coronavirus-hit airlines in push for divisive route subsidies
Air France planes are seen at Paris Charles de Gaulle airport. (Reuters)
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Updated 11 April 2020

Coronavirus-hit airlines in push for divisive route subsidies

Coronavirus-hit airlines in push for divisive route subsidies
  • Move stoking tensions with some low-cost carriers that are less likely to benefit from the additional funds
  • Operating subsidies would add to tax breaks, charge deferrals, loan guarantees and other forms of government support

PARIS: Major airlines are seeking operating subsidies for key routes once coronavirus restrictions are lifted, a leaked lobbying document shows, stoking tensions with some low-cost carriers that are less likely to benefit from the additional funds.

Route subsidies feature on a list of financial support requests circulated among airline members of the International Air Transport Association (IATA) and seen by Reuters.

“Airlines will need support to maintain their networks, which play a critical role in driving the world’s economy,” Geneva-based IATA states in the 12-page digest of “key messages” for airline public affairs executives to take to governments.

The support can be offered “either through a rebate on landing charges per flight or via a direct subsidy per available seat kilometer until markets have been stabilized”, it adds.

IATA spokesman Chris Goater confirmed the authenticity of the document, which was first reported by Unearthed, an environmental news service funded by campaign group Greenpeace. “It’s a private document for our members,” Goater said.

Operating subsidies would add to tax breaks, charge deferrals, loan guarantees and other forms of government support given to airlines crippled by an unprecedented near-total shutdown of air travel in the face of the global pandemic.

But they may also strain industry efforts to present a united front amid growing dissent over aid and its effects on competition. Ryanair’s Lauda unit publicly urged Vienna on Thursday to withhold financial support from Lufthansa-owned Austrian Airlines.

HIGHLIGHTS

  • Support sought for core routes.
  • Budget carriers less likely to benefit.
  • Subsidies or rebates considered.

“Not all airlines (are) in support of this initiative,” the IATA document states, noting a “high risk of discrimination if only applied in certain markets”. It did not identify carriers seeking or opposing route support.

British Airways parent IAG and Air France-KLM declined to comment on the proposal. Germany’s Lufthansa did not respond to requests for comment.

Subsidies have long existed on low-traffic routes offering economic lifelines to regions with few other transport links.

But IATA, which represents 290 airlines, wants support to help to restore services on some of the bigger international connections during what may be a slow and difficult recovery.

Even after restrictions end, airlines could face further losses, hit by weak demand, intense fare competition and limits to passenger numbers designed to keep the coronavirus at bay.

“It’s only core routes that a government would probably consider supporting at this stage,” IATA’s Goater said. “They’re not going to be looking at marginal tourism routes.”

The emphasis on economically important connections favours so-called flag carriers over budget rivals such as Ryanair, which fly more leisure passengers to and from secondary airports.

“Under EU law, any grant of state aid must respect the principle of equal treatment.” a Ryanair spokeswoman said when asked about the call for route subsidies.

“We are in contact with the European Commission to ensure that it remains vigilant and blocks any aid measures that favour ‘national’ airlines.”

EasyJet, which operates no-frills flights from major airports, said that route subsidies “may be needed to encourage faster restarts” when its services resume.

“But we must ensure there is a level playing field, so any support should be equally applied and should not distort market competition,” a company spokeswoman said.

The coronavirus fallout could make some flights financially unviable long after they are allowed to resume, IATA said.

“If a government wants a particular route to be running because it’s strategically important, then temporary funds or support may be required,” Goater said.

“It’s part of our ask to governments, but it’s not our number one ask.” 


Jack Ma video reappearance fails to soothe all investor concerns

Jack Ma video reappearance fails to soothe all investor concerns
Updated 30 min 10 sec ago

Jack Ma video reappearance fails to soothe all investor concerns

Jack Ma video reappearance fails to soothe all investor concerns
  • Ma had not appeared in public since Oct. 24, after he blasted China’s regulatory system
  • Chinese regulators have set about reining in Ma’s financial and e-commerce empires

HONG KONG: Billionaire Jack Ma’s 50-second video reappearance has done little to resolve Alibaba Group’s troubled relationship with regulators that is making some investors hesitate about owning the Chinese e-commerce giant’s stock.

Relief at Ma’s first public appearance added $58 billion in market value on Wednesday as Alibaba’s Hong Kong-listed stock soared, though doubts crept in a day later and the stock fell more than 3 percent as the broader market steadied near two-year highs.

Ma had not appeared in public since Oct. 24, when he blasted China’s regulatory system. That set him on a collision course with officials and led to the suspension of Alibaba fintech affiliate Ant Group’s blockbuster $37 billion IPO.

A source familiar with the matter said Ma cleared his schedule late last year to keep a low profile, prompting discussion at Alibaba about when and how he should reappear to assure investors.

It was decided he should do something that would appear as part of his normal routine, rather than anything overt that could irk the government.

While Ma has stepped down from corporate positions, he retains significant influence over Alibaba and Ant, and the regulatory crackdown on his business empire coupled with his absence was a concern for some investors.

There was skepticism that Ma’s brief reappearance meant all was well with his businesses.

“The coast is not all clear for Alibaba and it is a judgment call whether you believe the company can still thrive in the changing environment,” said Dave Wang, a portfolio manager at Singapore’s Nuvest Captial, which owns Alibaba stock.

“Without some skepticism, the price would be a lot higher,” he said, adding his firm had increased exposure to China and with it Alibaba, which he believes can prosper over the medium to longer term.

Two of the company’s investors in the US who have sold out or reduced positions in Alibaba said they needed more reassurance about the company and the regulatory environment before reconsidering the stock.

“One of our top criteria is leadership and we were investing in Alibaba because I really respect Jack Ma as a leader,” said William Huston, founder and director of institutional services at independent investment advisory firm Bay Street Capital Holdings in Palo Alto, CA, with assets under management of $86 million.

“We all know that just because he showed up ... doesn’t necessarily explain what is going on.”

Huston, whose firm cut its holding in the Chinese firm last year from 8 percent of its portfolio to less than 1 percent, said the halting of the Ant IPO in November had caused uncertainty, and that Alibaba was “not a prudent investment” for it going forward.

David Kotok, chairman and chief investment officer at Cumberland Advisers, Florida, which has about $4 billion in assets, said he held Alibaba last year but also sold as the Ant IPO was pulled.

“When you don’t know what to do in an evolving situation like this you can’t use traditional securities analytics to reach decisions. We are standing aside and watching,” Kotok said.

Chinese regulators have set about reining in Ma’s financial and e-commerce empires since the Ant IPO suspension, which has weighed on its stock that remains below levels prior to the cancelation of the Ant IPO.

“What his actual state is will be completely up to Beijing to reveal to us,” Leland Miller, CEO of US-based consultancy China Beige Book.

“What we do know is whether Jack is running around, Jack is hiding or something else, Alibaba is not in the clear. There is a lot more of the story still to see.”

Some investors are, however, betting on long-term potential for Alibaba in the world’s second-largest economy.

Dennis Dick, a proprietary trader at Bright Trading, who holds Alibaba shares, said he had protected against a potential fall when speculation about Ma’s whereabouts began by buying put options.

He covered those puts earlier in January on a report that Ma was OK and retains a long position in the stock.

“We have been investors for many years ... there’s a very strong team of executives and Alibaba is bigger than just one person,” said a Hong Kong based long-only investor, declining to be named as he was not authorized to speak to the media.