We've seen many times (even pre-COVID-19) in Europe that airlines sell tickets and go bankrupt in the Summer and thus ruining peoples Summer holiday. The customers have already paid in advance (sometimes months ago) whereas the airline has to pay its bills when delivering the service (or a few weeks before). The idea is that the client pays and the money to be put in an escrow account. This means that the airline receives the cash when it delivers the service.
Airlines going bankrupt is the main point. I disagree though to entrust the credit card company with the money.
FluidFlow's statement is excellent. But I do understand the airline owners. Because the industry is so high risk, it's better to have little equity that one may loose on average after let's say 25 years.
If one get's 10% return on equity, that's an acceptable risk. If one has 12 % equity and 88% liabilities in form of bank credits, unpaid bills of the last 90 (?) days and already paid tickets that shouldn't be difficult.
What if the owner keeps 25% instead of 12 % equity?
I believe in a Black Swan event the outcome is the same, all equity is gone. Maybe owners would be willing to keep more equity if they could fire employees on two weeks notice?
But even then there are a lot of fixed costs left.
I believe the airline industry needs variable work contracts. E. g. a mechanic has 30 -42 hours work in a week depending on the health of the industry.
He is paid per hour, but above 36 hours there should be a 20% increase. Same is needed for suppliers.
Similar leases should be more by hours flown, of course with a minimum requirement.
If the economy goes down, business class ticket sales go down. People may decide to skip a weekend holiday. This industry has too much discretionary spending, it will always be a roller coaster industry.
So who is to take the risk?
The owners by more equity?
The banks by giving more credit?
The consumer by paying tickets six months in advance?
Employees by having variable work contracts?
Suppliers by accepting delayed payment?
Being so high risk there is moreover the added risk of self fulfilling prophecy. If suppliers are paid within ten days of delivery there is little risk that they will stop delivering.
Would you deliver on 90 days payment terms if there are rumours of financial difficulty?
What if a supplier with critical technology gets into trouble because bills remain unpaid?
Similar if an airline depends on customer advances to manage cash flow, rumours are not helpful.
So who should take the risk then? Banks? Taxpayers?
I believe variable work contracts are a must for roller coaster industries. But then there are limits with how little work/ income employees can still pay their non-discretionary spending.
I believe the government has to put a surcharge on tickets which goes on an account specific to this airline. I can't judge how high this surcharge has to be.
What if in a black swan one airline uses up all money on that account, but another airline has money on its account to pay 50% of it's liabilities?
Somehow this surcharge has to be related to equity and liabilities.
How to handle a foreign airline that has only a few percent turnover in one's country?
They will empty their account even to pay for losses in other countries. Do consumer in the country with proper regulation therefore pay for losses in other countries?
If it's a EU wide system one could exclude flights beyond EU borders. But then consumers of EU flights have to pay for losses of those who fly outside the EU. So I believe a 3% fixed surcharge on long range flights takes care of most black swan risks concerning long range flights. Within the EU flight surcharge should depend on equity/ debt.
As this system takes care of most risk it is tempting for owners to reduce equity further. Getting all chances without taking risk doesn't sound right to me. See banking. If equity is only 3 % why not to gamble with other people's money? If I own a billion, why not risk 100 million if potential profits are huge? So I believe 10% equity in normal times is an absolute must. The accounts managed by the government is for black swans, not ordinary business cycles. So once equity falls below 10%, dividends to shareholders or share buybacks must be prohibited. Below 0% equity the surcharge on tickets has to increase strongly.
In case equity falls below -10% bankruptcy proceedings are initiated. The money on the government account is released to pay unpaid bills. If any money remains it stays as cash and the airline is sold to the highest bidder.
That system is meant to protect suppliers, customers and the taxpayer. For the owners it remains high risk, high rewards.
Having a system in place now that takes care of most risk I still agree that ticket sale should be limited to two months.
I hereby assume that two months is long enough to enable airlines to sell cheap tickets for private travellers to generate demand/ to profit from economies of scale (A321 instead of A319, regional jet instead of no flights at all) and at the same time be able to sell to the business travellers at higher rates. Somebody correct me if I'm wrong.
Why I support a two months limit:
-If economy goes down, it isn't useful not to reduce capacity. Why to offer five connections on a city pair if four are enough? By reducing to four one can achieve better pricing.
-If oil price goes up, ticket prices should go up as well. A high oil price means a shortage of oil. Why to exclude aviation from the possibility to react to price signals?
-Airlines need not waste money on fuel hedging.
-Unless there is a black swan, risk is shifted to equity or bank credit. Banks are in a better position to asses risk than airline customers or suppliers.
Obviously that argument makes most sense if banks are proper regulated. It doesn't make much difference if banks or airlines have to be bailed out.
That two months rule makes far more sense if work contracts enable variable work hours.
I believe variable work hours are really what is most needed in this industry/ any roller coaster industry.
Maybe seniority could reduce work time instead of increasing salaries? With the possibility to work 42 instead of 30 hours during demand peaks?
I disagree with people's anger about airlines not refunding tickets. If airlines and suppliers could fire their employees on two weeks notice one could discuss it.
I do find it immoral if an airline whose future is in doubt sells tickets months in advance.
But that is not the case here. The airlines were committed to deliver the service, but government interfered.
There will be injustice, but statistically speaking who should pay the losses, taxpayers or those who fly a lot?
I assume the real interest of those who regularly fly is that the industry is still in place when the crisis is over. Getting back pilots should be easy, but what about mechanics, people working in offices...
Train new employees?
There was no bad intention on the side of the airlines. It's a black swan of huge proportions. Airline employees will loose their jobs, so how bad is it not to get a ticket refund?