EU/airlines: The European Union seems to have buckled under pressure from a beleaguered airline industry. It says it will let airlines receive state aid to cover the 1.5 to 2.5 billion euro costs racked up after Iceland's volcanic eruption led to thousands of flight cancellations earlier this month. But the case for state aid looks weak. Shareholders, future passengers and insurers -- not taxpayers -- should accept the risks associated with air travel.
The airlines might have a case if they could somehow prove the closure of airspace for so many days was "unnecessary", as low-cost carrier Ryanair claims. But this will be very difficult to establish. Governments could hardly have ignored the guidance from their safety experts. Air travel is a risky business, as both shareholders and passengers know. That is why airlines like to keep a lot of cash on their balance sheets. Insurance, while expensive, is available to cover the fleet being grounded. The risks and costs ought to be reflected in the ticket prices. If the airlines miscalculated, taxpayers should not have to pay for the mistake.
Painful as the airport closures were, all of Europe's major airlines had enough cash to deal with the incident. BA, Lufthansa, Air France and Iberia, as well as Ryanair and Easyjet, could afford it. If smaller airlines cannot deal with a week of cancellations, then perhaps their model isn't sufficiently robust. State aid risks distorting competition and propping up undeserving businesses. Of course, it is not as if deficit-ridden European governments have lots of spare cash to satisfy requests for state aid. At least Germany, which has an enviably small deficit and could well afford it, says it will resist such appeals.
The EU should consider reforming legislation on air passenger rights. As it stands, airlines are on the hook for the cost of caring for stranded customers and they would benefit from a clear limit on liabilities, and a better framework for managing the risk. This has to be a priority -- before another Icelandic volcano wakes up.