Could Airlines Be Nationalised? As Italy Takes Full Ownership Of Alitalia, Will More Airlines Follow?

To free-market economists, nationalisation is somewhat of a dirty word. From utility providers to rail companies and airlines, history would suggest that nationalisation is an inefficient and last-resort option that incarcerates a company to inefficiency and poor management.

Of course, there is another side to the argument. Vital services and incumbent companies may need to be under the umbrella of government ownership to not only ensure job survival but a continuation of services.

The 2008-11 financial crisis saw governments around the world taking part or full ownership in many banks and mortgage providers to ensure their survival. Inevitably it is the tax-payer that foots the bill, but in times of crisis, nationalisation may be the only option to ensure the survival of certain companies.

The global aviation industry has been one of the sectors hit hardest by the outbreak of COVID-19. Many airlines have grounded the majority of their fleets, with scheduled flights by many major flag carriers being slashed by over 90%. British Airways, Singapore Airlines and Cathay Pacific are all examples of would-be flag carriers that have grounded more than 90% of their fleets. 

Governments around the world have already stepped in to offer extensive support packages to airlines. Singapore Airlines has received $15 billion, and the Australian government has pledged $1bn in support for Qantas, which is Australia’s largest airlines.

Elsewhere, U.K. airlines including Virgin Atlantic and EasyJet have asked the government for £7.5 billion in immediate support and U.S. commercial airlines have requested $50 billion.

However, the question remains as to which airlines will be supported, bailed out, and even potentially nationalised.

The situation in some countries is more clear than others. Singapore, Hong Kong Italy and Australia have one clear incumbent carrier that would be bailed out to ensure connectivity in a post-coronavirus market.

In the U.K. however, British Airways is by far the largest carrier, which leads to the question as to whether smaller airlines could, or even would be bailed out or nationalised.

In Italy, the nation’s largest airline Alitalia has fallen into government ownership for survival, again. It is not the first time the fledgeling airline has been nationalised, but if Italy is to retain any sense of a national airline, the move was necessary. 

In countries that have multiple large airlines, the question must be asked whether all of them or any, should be nationalised.

How would the Australian government, for example, fairly decide to protect and quasi-nationalise Qantas, the country’s largest airline, without also fully supporting Virgin Australia which has nearly 100 aircraft in its fleet?

In countries such as France and Germany, where there are clear national airlines and incumbents in Air France and Lufthansa respectively, the option is obvious, that governments should, and likely will support their major carriers at all cost. Whether that will stop short of nationalisation and be more of an ongoing support package remains to be seen.

However, in the U.S. and the U.K., nationalisation of airlines would be nearly impossible, due to the fact that clear market leaders do exist, but nowhere near to the extent of countries such as Italy, France and Germany. All the aforementioned examples have indeed at some point in their history seen substantial government ownership in their largest airlines.

British Airways has also seen government ownership in their less successful past, but the difference now is that there is substantial competition, particularly from the low-cost carriers.

By saving, or nationalising one airline over another would demonstrate favouritism that would be difficult to justify from a government standpoint.

Therefore, we should expect to continue to see some nationalisation of airlines, but these will likely be limited to countries that have a clear flag carrier and that were already struggling before the onset of COVID-19.

Airlines such as Air India and Emirates have long had government support and ownership and we should expect partial state-ownership in these carriers to continue far into the future. 

In the U.S. and the U.K., despite a growing school of thought that governments may nationalise the major airlines, I just don’t see any feasible or rational scenario where this could happen. Could governments take an equity stake in some major carriers such as British Airways? Absolutely. Will any package include nationalisation of airlines in the U.S. or U.K? Highly improbably.