Category: Passengers

Modern airports face a number of important challenges, from passenger facility charge (PFC) debates to technological modernization. One of the problems that has become more pronounced in recent months is airline bankruptcies. These have left many passengers stranded and scrambling to figure out ways to get home.

In April, the largest private airline in India, Jet Airways, announced its collapse with no warning and immediately canceled all of its domestic and international flights. The suspension was on a temporary basis due to lack of funding to purchase fuel and maintain critical services. Perhaps this announcement should not have come as a surprise considering that the airline announced serious financial issues in 2018.

Creditors did come to the company’s rescue. However, these events have left some people questioning whether airline should pay a tax to guarantee that customers will be able to return home.

The Collapse of WOW Air

The Jet Airways fiasco followed close on the heels of the collapse of WOW Air, a low-cost carrier based in Iceland. This company suddenly ceased operations toward the end of March. The WOW business model attracted a large number of customers, but it ultimately proved unstainable.

In November 2018, the chairman of Icelandair spoked about a finalized deal to purchase WOW. However, the Icelandair shareholders quickly shot the deal down once they realized the scope of the investment necessary to revamp the company.

After that, Indigo Partners also attempted to help WOW out until investors shot down the feasibility of the plan. Because of the quick collapse of WOW, its airplanes were still scattered across the world months after the bankruptcy.

The Collapse of Alitalia

Another airline that has received a lot of attention is Alitalia, an Italian carrier with a long history of poor financial performance. In fact, the issues leading up to the current situation started in 2008 when the Italian government decided to privatize the airline on the eve of a global financial downturn.

Eventually, a purchase was negotiated with the Compagnia Aeronautica Italiana group, which failed to turn around the airline. Poste Italiane, funded by the Italian government, had to step in with a cash injection. Eventually, Middle Eastern airline Etihad purchased 49 percent of Alitalia.

Soon thereafter, Etihad experienced its own financial issues. This led to Alitalia starting the proceedings for bankruptcy again in 2017. The Italian government has kept the airline alive, but it seems like its days are numbered. Already, the company has delayed bankruptcy proceedings twice.

United Kingdom Suggests Repatriation Insurance Tax

Many people believe that something needs to be done to address the issues caused by these types of events. Recently, the United Kingdom took first steps toward action. The government proposed a new Flight Protection Scheme, which would involve an additional 50 pence per passenger per flight.

This additional money would require airlines to purchase an insurance plan that would repatriate passengers should the company ever experience a sudden bankruptcy. The recommendation comes on the heels of an Airline Insolvency Review.

The review showed that about 80 percent of British passengers travel abroad without any sort of insurance or other way to get home should the airline suddenly bankrupt. The situation is likely very similar, if not worse, in other countries around the world.

Naturally, the British aviation sector immediately pushed back against the proposed “tax.” Airlines UK, which represented 13 different carriers, stated that airlines face significant rising costs already. It believes that now is a particularly bad time to invoke further increases in the cost of airline travel.

British Airways also called out the proposal for being unfair and expressed a view that the new tax is a sort of levy to bail out other carriers. Much of this debate actually stretches back to 2017, when the British airline Monarch collapsed and left many UK nationals stranded. This event is what triggered the Airline Insolvency Review, which took two years to complete.

The Options Available to Solve the Repatriation Problem

The proposed Flight Protection Scheme is essentially a pot of cash that would be used to bring people home when their flights were suddenly canceled due to bankruptcy. Airlines would need to buy into this pot through an insurance policy. However, there is more to the recommendations. The government also wants to see a failsafe mechanism that would prevent airlines from stopping flights even when they go bankrupt.

While the details have not been worked out, the government wants to see a policy by which companies would be forced to keep flights going until their passengers could return home. This sort of plan has actually worked in the past. When Air Berlin started to fail, the German government infused it with enough cash to maintain operations for an appropriate amount of time.

Some critics of the plan have pointed out that the issue may not be a real one at all. While the Monarch fold was a disaster, time has passed since then and new precedents have been set. When WOW Air stopped its operations suddenly, 13 other airlines stepped in to offer passengers rescue fairs without any official government order to do so.

A general sense of duty and voluntary industry agreements drove this rescue mission. It seems likely that a similar thing would continue to happen, at least to a point. If airlines continue to fail at an alarming rate, however, the industry could experience fatigue. At that point a repatriation tax might prove useful.