2020 is going to be the most extraordinary year which will live long in the memory of all those who survive it, which I hope to do.
Most of us will get coronavirus. Outside the UK many will survive. Here a smaller proportion will, entirely as a result of the decision of the government to encouraged the mass spread of the disease.
Simultaneously, we are already witnessing one of the biggest stock market crashes in history. The situation is volatile, but the only way is down for some time still to come in my opinion.
This crash is going to be followed by an economic crisis unless governments intervene on unprecedented scales (which they can) as record numbers of businesses in a wide range of sectors will fail, and hundreds of thousands, if not millions of jobs will be lost.
Worse, the risk that all the failings of financial capitalism, accumulated over 40 years, will become apparent simultaneously is very high: markets built on the flimsiest of foundations, such as the zero cost of capital that most banks have enjoyed for the last decade, will prove to be unsustainable and a domino effect will emerge.
At the same time enforced behavioural change will make it apparent to people that we really do have to change our lifestyles if we are, as a worldwide community, to also survive climate change and beat its consequences.
Combine all those factors and some quite extraordinary things are going to happen, including the complete elimination of some business sectors that have become so commonplace to many of us that their disappearance is very hard to imagine, and yet has to be contemplated, nonetheless.
I will offer an example. I suggest that the entire worldwide airline industry is probably going to cease to exist as we currently know it before the year is out.
British Airways has said that it is living through an unprecedented crisis. It has said that jobs will be lost, aircraft will be mothballed, routes will be closed, and that it has no idea what the impact of this will be. Lufthansa has already provided the answer to that last point: it has already applied to the German government for financial assistance to prevent it becoming insolvent. That is a pattern that I am quite sure every single airline will follow. I would suggest that there is, quite literally, none outside the state-owned sector that has anything like the financial resources to survive the crisis they now face.
Transatlantic flights are in lockdown.
Travel restrictions that will prevent mass tourism this summer are incredibly likely.
People are already exploring ways to work without having to travel.
And the idea that people will, whilst self-isolating, think about booking overseas holidays is fanciful, to say the least.
What is more, given that there was already a move against air travel because people are increasingly aware of its deeply destructive carbon footprint, once an unawareness that we can survive without getting airborne exists the demand for air travel, if and when it is recreated, is likely to be at a much lower level than in the past. A significant overall future reduction in demand is the almost inevitable consequence of the change that this sector will see this year.
In combination I suggest that this means that not a single commercial airline in the world can now be considered a going concern. And, given the likely duration of this crisis, I repeat that I expect every single one of them to fail. In the sector that is characterised by enormous investment in assets, the vast majority of which are paid for with long-term debt, which is unlikely to be waived as a consequence of the changes that are taking place at present, insolvency is the only, and inevitable outcome for every airline now in existence. I see no way around that.
Unless, of course, governments pretend, as they did in 2008, that 'there is no alternative' (the TINA scenario) to then save every airline. Except that the UK government response to Flybe suggests that this is unlikely. In that case a whole sector of commercial activity is, quite literally, going to come to an end.
I stress, I am not saying that we will never see a plane in flight again: that would be absurd. Very clearly that will happen. But whoever might be operating those planes in the future is very unlikely to be a company that is currently in existence.
What we will see is a reversion to the type of airline industry that existed when I was in my youth. Back then ( and it really was 'back then' in these terms) the vast majority of airlines were state-owned, and existed as what were known as 'national flag carriers'. National pride required that every country had such an operator, however much it cost to support it, and that cost was very often quite significant. This, I suspect, will be the new normal in this industry. But the result will be that states will make the decisions on air travel, and if they take climate change seriously this is going to mean that the era of massive air travel growth (which has been up about 50% since 2008) will be over.
This is going to be tough.
It will be tough on airlines.
And tough on their employees.
And the impact on the long haul destinations, in particular, and the other sectors that serve them, like cruising, will be harsh.
Surviving coronavirus is going to be tough. And when we get to the other side the world is going to look very different from what we have been used to. This time it really will be different.
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Let’s hope this is the wake up call that the human race needs, and that despite Attenborough, Greta, XR and all is still in denial of the climate crisis. Slashing economic activity simultaneously produces financial disaster and significant environmental benefits.
Does this mean that the current pandemic is the breakthrough moment for achieving the necessary reduction in carbon emissions to stop global warming? Putting (briefly) my utilitarian extremist hat on, will fewer people die in the long term because of this?
Maybe
But it’s never the way I would have suggested creating a tipping point
Unfortunately many more citizens will have to seek assistance from the Tory social welfare system, including universal credit (UC). Better off groups, such as lower paid workers directly employed by airlines and airports and even highly skilled workers in the wider aerospace engineering and supply industries will be laid off, as corporate cash flows go into free fall. Workers will have to seek financial assistance, possibly for the first time as they are laid off, and stare face-to-face into UC horrors.
Then the citizens of National Conservative Britain shall witness first-hand the callous nature of Tory policy. Large numbers of these workers live in and around London e.g. Uxbridge and South Ruislip (Johnson’s seat), and should not forget.
The impact on cruise operators may be even greater.
It will be a long time before retirees will again choose to be herded in floating Petri dishes.
By that time, port authorities may have adopted more stringent air quality standards, requiring ships to cease burning dirty diesel to generate the electricity they consume while in dock. And there will be international pressure to curb the huge carbon emissions that result from having to propel what are nowadays massive luxury hotel and entertainment centres through the oceans.
Agreed
But then, I remain completely baffled by the whole idea of a cruise
Oh thank God – I thought I was the only one who just doesn’t get them.
The last time I was in Venice (got the Thello sleeper train from Paris) we were queuing to get the catamaran to Croatia near the quayside on a beautiful summer’s day and all of a sudden I thought that we were witnessing a lunar eclipse only to realise that is was actually a huge cruise ship that was coming into port – I mean it was as if it was as big as Venice itself!! It literally blotted out the sun! It was the ugliest thing I’ve seen in my life – brutalist architecture on a barge. Uggghhh!
I had many disagreements with my father, most based on incomprehension
I had not the slightest idea why he got into cruising at about the age I am now
I hope to never go on one
While from a green point of view the elimination of air transport is very welcome there will be a large knock on effect to be tackled with unemployment at places like Boeing, Rolls Royce and other manufacturing firms world wide.
Agreed….
Banking will not survive either: too much exposure to funding the sector
Be interesting if Boris the friend of the bankers refuses to bail them out a la Labour or indeed if he does as it will further undermine the suggestion of any overspending by Labour as an excuse for austerity. People are going to start getting very angry once this becomes apparent… popcorn time for a while I think.
My worry is that banking will survive but it will be the increasing debt loaded onto consumers/people that they will increasingly rely on until we get living wages sorted out or some form of UBI or jobs guarantee.
At some point though, banks are going to have to be allowed to fail – they took a risk….well?!! And what we should see then is the emergence of a national state owned bank on our high streets.
If the banks fail it’ll be opportunity for the central banks to leap forward with the digital currencies they’ve been preparing. We’ll simply have an exchange of parasites 🙁
The Mayans appear to have had their prediction of the end of an era a few years adrift. Still a good call though!
I was thinking of high street national bank that could be used as a provider of last resort by ordinary people Bill – never mind corporations, financiers and the like. A national bank for you and me, so that bailout could in fact help the likes of you me and a national bank would provide the architecture for it.
It would also act as threat to private banks to keep their houses in order.
We had such networks once ….
The price of aviation fuel is coming down along with the price of many other petroleum products. So some airlines may buy it at the lower price but would you do that if you wanted to hold onto to your cash reserves. I think no, so stockpiling at the cheaper price is unlikely.
But the aviation industry will recover, maybe under different ownerships but it will be back. You cannot un-invent the airplane and it’s a great way to travel a long way quickly to experience other peoples and cultures.
So now is the time to call for a CO2 tax on aviation fuel internationally. Get rid of APD and implement a simple $200/tonne tax on CO2 produced by outgoing planes, and on incoming planes too if arriving from a country that doesn’t follow suit.
So when the industry does pick up, the airlines and their customers pay the best estimate of the external cost of their activity.
So you agree; they will not survive
There may well be better taxes than that but in essence just get on and agree with me
The only way to properly deal with our carbon footprint is the simple measure of requiring each ton of carbon burned, to be matched with three tones of CO2 sequestered. This is precisely carbon neutral. Silly intermediate steps like tax or the bizarre offsetting rules are just playing with the problem. Yes, it makes burning fossil fuels very expensive indeed, but if not now, when?
Plus it’ll make the production of artificial fertiliser eye watery expensive. How will we be able to grow all the plant food required – given that growing meat has, apparently, been proven to be a major contributor to all the World’s ills – if such taxes are introduced?
I agree. Unless a vaccine is found and quick!
A vaccine will not solve the economic problems we already have due to the first 2 months of the pandemic, let alone the next 6-12 months, needed to deploy, even assuming no testing! ( Yes, vaccine design tools are now almost good enough to go to deployment without testing!)
Many of the economic problems were there waiting to blow, before the pandemic. I know of no-one who can offer an idea on how to put the system back together.
There are some of us who have (conflicting) ideas for deploying a new economic system in its stead.
None are without pain for many
For what it is worth, a global rationing system of food and energy is my vision. Where an equitable, sustainable humanity seeks to minimise misery, while allowing everyone to pursue self-actualisation, within the constraints of the planet.
You think national airlines Emirates, BA etc won’t survive? They have fleet, staff, customers, air space and the infrastructure remains in place. They lose perhaps a maximum of 6 months earnings to which they will receive some state aid probably with a capital injection from shareholders via a rights issue. In the case of Emirates their survival is 100% guaranteed because of the state. The smaller airlines perhaps more questionable but many have been highly profitable and will continue to be in the future and again will receive a capital injection from state and shareholders to tide them over. The state injection will most likely come from supporting salaries to avoid mass redundancies.
So yes many airlines will survive.
Emirates is, in effect, a state-owned airline
I said they would survive
And no, they will not support salaries….there is no sign of that happening anywhere
I remember reading that Airbus needs aviation to grow by x% (can’t remember exact figure). If it does not, then Airbus can’t afford to develope new aeroplanes. The development costs are so big that it needs to know the customers are going to be there at the other end. Could be the end of Boeing and Airbus.
Every way you look at coronavirus, governments are going to need to step in to prop up so many sectors of the economy. Which will be allowed to fail and which will be saved? Can the government even save the bits it chooses as a worthy cause?
To hold society together, the government will need to play the central role.
Unless of course a vaccine can be created in the next few weeks.
Airbus is 26.5% owned by the French Spanish and German government companies. They have a blocking vote on anything to do with the company. Airbus is the biggest manufacturer in the world. There military contracts will certainly protect at least part of the company and I imagine the government’s will not want them to fail.
Difficult times ahead for air transport all the same
To add to that, as of yesterday Admiral, Churchill and Direct Line have all stopped selling new travel insurance policies: the risk of travelling under threat of being stranded abroad in the middle of an epidemic with no insurance just finishes the job.
Whatever “business as usual” emerges at the end of this crisis – in say, 18 or 24 months time – it’s unlikely to look like the “business as usual” we’ve experienced in the last few years. It could even see a serious move to a post-growth green world economy – I can dream, can’t I?
You can
And why not?
The dream needs to become a reality.
A zero growth economy is going to look very different though. Would be the end of banking as we know it. If the “pie” no longer increases in size, then where does the interest come from to pay on any loans? It will be robbing Peter to pay Paul.
Money would no longer be a store of value but just a means of exchange. The City of London will cease to exist.
That’s why it’s not just the fossil fuel companies that are in climate denial. Lots of vested interests out there that don’t want to see the necessary change happen. They would seem to rather drag us all over the edge of the abyss.
Medialens ask a pertinent question regarding the consequence of the possible end of Airlines:
“The three-day US flight ban after 9/11 temporarily increased US temps by 1.1 °C and impacted temps globally: ‘no one had ever seen such a big climatic change happen so fast’. What happens to global dimming if 10,000s of flights are cancelled globally now? ”
Global Dimming: BBC Programme transcript:
http://www.bbc.co.uk/sn/tvradio/programmes/horizon/dimming_trans.shtml#top
An interesting report re Global dimming. A few years ago flights in Northern Europe were stopped after ash clouds developed from a volcanic eruption in Iceland.
The sky here in South Devon was crystal clear for a few days but returned to normal the day the flights resumed. Many flights crossing the Atlantic Ocean pass over a navigation beacon on Berry Head, Brixham, and there is usually a constant path of vapour trails visible across Lyme Bay.
I understand that Met Office researchers are now well aware of this Global Dimming phenomenon.
I think you have a point – but somehow it may not see the end of the industry – I think what might come out of this is better international working to stop such viruses happening in the first place. With Chinese doctors in Italy – I find that really heartening. Maybe the threat to these established income generators like the airline industry might encourage nations to work together when there is a worrying increasing threat of isolationism driven by nationalism?
But the other thing to me is, just how close to the wind such airline operators are financially to the point that they are so vulnerable to shocks like this? Is it to do with the over-supply of providers? The structure of their financing? We may need to look at how the industry is set up – competition for flights seems wasteful to me and means that flying is artificially too cheap ands it looks like staff and the planet actually end up subsidising flying.
As for losing tourists, the answer is simple: make sure that your workers have decent wages and conditions where they live perhaps and look at in-country/indigenous methods of creating sustainability for your communities rather than relying on tourism (easier said than done I know).
In terms of our industries holding up, the “Just in time” supply chains are a concern. We’ll soon see how resilient this methodology is in stressed times?
I’ve been following the Boeing 737 max saga closely having worked on relevant technology in the past. It maybe the final nail in the coffin for that model, it has a host of issues and has cost the company 10 billion USD (I think) not forgetting over 350 lives lost.
BA is part of a Spanish group I thought? Nothing much British about it.
[…] Cross-posted from Tax Research UK […]
I’m worried about all the sole traders, ‘self-employed’, freelance, gig workers, etc, etc. What do you think about proposing a UBI-type allowance – even for a time-limited period? Better than all that quantitative easing?
See my latest, thus morning….
‘Most of us will get coronavirus.’
According to the Johns Hopkins site there were just under 81,000 cases in China. Wuhan has a population not far short of the UK’s. China has recorded just over 3000 deaths. Circumstances are different in different countries of course but there must be some comparison.
The general concensus has been that restrictions as draconian as the Chinese would not work here but the government is now proposing restrictions on all over-seventies more severe than those in Wuhan, to last for probably twice as long. (Unlike the Scottish government.) The effect on the physical and mental resiliance of older people would be considerable. Meanwhile the Westminster government has imposed virtually no mandatory restrictions to enforce social distancing generally across the population (unlike other European countries).
Perhaps we deserve more explanation.
The population of Hubei province is similar to the UK’s at about 60 million. The city of Wuhan, which is in Hubei, has about 11 million.