The COVID-19 Pandemic Effects on Economy and Transport ...

PowerPoint Presentationand Transport Sector: Focus on Air Transport
© Prof. Tae Hoon Oum
and
3. Impacts on Air Transport Sector • Global • USA • Europe • Asia
4. Future Research issues
US unemployment shot up to 24.5% in April ‘20
2020 monthly unemployment rates for Full- and Part-time workers
0
5
10
15
20
25
30
35
40
45
50
% o
small businesses)
Monetary Stimulus – US Federal Reserve and other Central Bankers used
even larger Liquidity in the financial market (Bonds and equities)
US Fed. Reserve’s Total Assets: increased $4.173T in Jan ‘20 to
$8.319 T in August ’21 – more than doubled in 20 months
Gov’t debts as % of 2020 GDP: USA the 3rd most indebted country in OCED after Greece and Japan
1. COVID-19 impact on Society, Economies and National Economic Policies
2. Socially Optimal Lockdown and Policy Measures 3. Impact on Transport, especially on Aviation Sector
4. Future Aviation and Transport Research issues
2. Socially Optimal Lockdown and Policy Measures
Oum and Wang (TP 2020) examines the socially optimal lockdown policy for communicable virus including COVID-19
Found a remarkable similarity between the market failure caused by the external costs a driver imposes on other drivers in urban transport context, and the external cost of infection risks a traveler imposes on other people,
Our analytical model utilizes urban traffic congestion models to study COVID-19 policy measures for correcting the market failure caused by the deviation of private optimal from social optimal quantities of travel (activity) volumes.
Socially Optimal Lockdown and Policy Measures
• Many urban traffic congestion studies (e.g., Fu & Zhang, 2010; Xia et al., 2019) use a quadratic utility function of a representative individual of the following form:
= − 1
2
= # of trips; = overall utility level of a trip; = travel demand elasticity w.r.t. travel cost.
The infection imposes two types of costs on each individual:
1. The “medical cost” for treatment, expressed as

being the medical service fee charged by the hospital.
2. The “pain and suffering and monetary cost to individuals” expressed as

′)
Model Results: Socially Optimal Lockdown and Policy Measures
1. Individuals do not internalize the external cost of infection risks they impose on others when making their own travel (social activity) decisions;
2. The existence of external cost implies the socially optimal lockdown period is always longer than the private optimum;
3. The violation penalty should be higher in the areas with higher population density and in larger cities because the total external cost of spreading virus by a traveler would be higher;
4. Stricter travel restrictions and higher penalties are required, when government subsidizes COVID-19 patients’ medical expenses
5. Violation penalties should increase with the city’s population size, people density, and per-capita income
3. Impacts on Air Transport Sector and Recovery • Global • USA • Europe • Asia
4. Future Research issues
Unprecedented collapse of world air passenger traffic: decreased from 4.5 bn (2019) to 1.8 bn passengers (2020)
2019 monthly passenger numbers
China’s Domestic Market recovery: weekly # of domestic flight by 5 large airlines
Source: compiled based on OAG
China Eastern
China Southern
Air China
Gov’t aids to airlines
US: (a) $62 billion for the airlines from 2020 CARES Act; $25 bn loan with warrants that allows govt to buy non-voting shares any time within three years; the rest are wage subsidies (b) Biden’s American Rescue Plan Act 2021 (ARPA) reserved $14 bn payroll support for passenger airlines and $8 bn for airports
Lufthansa €9 bn (€6bn for 20% govt ownership + €3bn loan guarantee)
Air France: €7 bn in 2020 (€3 bn govt shareholder loan + €4 bn loan guarantee) + up to €4 bn in April 2021 with approx. 30% French gov. ownership stakes
UK: British Airways £2.3 bn (£2 bn gov.-backed loan facility + £300 m loans), easyJet £2 bn (£1.4 bn gov.-backed loan facility + £600 m loans)
Australia: Qantas $2 bn in no-strings attached gov. payments by end of 2021 (tax breaks, loans, support packages). Virgin Australia was not bailed out and sought bankruptcy protection.
Canada: govt loan program for airlines (but with 5% interest; airlines did not take). In April 2021 govt announced $5.4 billion low interest loan (with conditions: no more layoff; refund tickets on Covid19 cancelled flight; AC issue warrants to allow government to purchase $500 worth of AC stocks at the current low price at any time in the next three years.
3. Impacts on Air Transport Sector and Recovery • Global • USA • Europe • Asia
4. Research issues arising from Covid-19 experience
Gov’t Role in the transport firms in which they invest
This COVID-19 crisis demonstrates vividly that governments are the powers of last resort to make sure that the private sector markets function when facing the scale of natural/economic disasters that insurance system cannot handle. e.g., Govts can decide which firms to survive, and which firms to go bankrupt or be liquidated.
Governments should purchase ‘non-voting’ shares rather than purchasing bonds; e.g., Delta and the US Treasury agreed on a $1.6 billion 10-year low interest loan in exchange for the warrants that allows the govt to acquire about 1% of Delta’s non-voting stock at $24.39 over five years so that the taxpayers may get profits from this risk taking; Delta share price $39.65 (8th Sept 21) – Taxpayers profit while saving Delta !
Should govt take ownership stake in airlines like German (France) govt took 20% LH ownership (30% Air France ownership) ?
Which form of govt bailout investment is better for social welfare? USA vs. Germany: for efficiency and social welfare.
Transport & Aviation Research issues – cont’d
Competition policy issues in the aviation sector due to consolidation of the airline industry, and reduced competition due bankruptcy of many airlines, especially LCCs; Should governments pay special attention to the LCC airlines that may go bankrupt?
ICAO and Global Warming: How should the baseline 2019-2020 CO2 level need to be adjusted for the CORSIA (Carbon Offsetting and Reduction Scheme for Int’l Aviation)
Global Leadership in setting standardized safety procedures for airlines, air travelers and aviation sector; Previously, US FAA played an important role, but now FAA lost credibility; who should play the role? ICAO, are they ready to take up the leadership ?
Single European market may be fractured and possibly abused by some countries because they may abuse Covid-19 restrictions for their national carrier’s advantage by restricting foreign carrier services ?
The current regulatory system for governing international airline services needs a reform:
• The 1944 Chicago Convention on Civil Aviation sets out the system of bilateral Air Service Agreement (ASA) between each pair of countries. This bilateral negotiation system has shown major limitations for forming a unified global leadership to deal with the issues for opening air services as the Covid-19 situation gets eased.
• This is the time for the global community to work for creating a better regulatory system for international services trade suitable for modern economy.
• Air transport could be included in GATS (General Agreement on Trade in Services) within the WTO system, just like Telecom and IT, maritime/shipping businesses,

Date post:	03-Oct-2021
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

The COVID-19 Pandemic Effects on Economy and Transport ...

Documents