Economy & Politics

Comment: The Lufthansa aid is distorting competition

Lufthansa machines at Munich Airportimago images / Overstreet

The federal government is raising a total of 9 billion euros to rescue Lufthansa. There are officially two main reasons for this: First, the airline is systemically relevant for Germany as a location. And secondly, in a company that was competitive before the corona crisis, it is important to save as many jobs as possible. Indeed, there are some sound arguments in favor of the key economic importance of a domestic airline. For the miraculous effect of billions in aid on employment, on the other hand, it is not, as we have seen these days.

Bernd Ziesemer
Bernd Ziesemer

Lufthansa is also currently shedding 38,000 jobs with German government aid. The money is only used to pay higher severance payments, but not to maintain even a single position. Many German citizens, especially in the left-wing parties and trade unions, find this perverse. But there are other state instruments for securing jobs – especially short-time working regulations. This goal cannot be achieved with a state participation – on the contrary: the silent capital contributions of the federal government and the minority participation are precisely constructed in such a way that the responsibility for all entrepreneurial decisions remains with the board of the group.

Nonetheless, indirect effects on jobs are becoming apparent: The German aid reinforces the group’s “home bias”. Lufthansa is shedding a lot more jobs in Austria or Belgium than in Germany. The state funds thus distort the competition between locations in Europe. Once again, everyone involved is closer to the national shirt than the European trousers.

In the end, Lufthansa wins at the expense of the competition

The competitive effects of German state aid can also be seen in the competition: with the billions of euros from Berlin in the back, Lufthansa is in the process of disrupting the long-term, very lucrative market for holiday flights. The time of cooperation with the two main German competitors Tuifly and Condor is coming to an end. Lufthansa is making it difficult for the two holiday airlines to book feeder flights. The small competitors fear the market power of the big airline, which would like to do business with long-haul flights to the popular holiday destinations itself. If this operation succeeds, many jobs at Tuifly and Condor will be lost. A strange effect of the help from Berlin.

Since the federal government is also subsidizing Condor and Tuifly because of the Corona crisis, a severe price war is already emerging on the holiday market if business picks up again in the next year or the year after next. With its billions in aid, the state finances the slaughter among all three corporations – the paradoxical consequence of a chain of isolated individual considerations. Each group is treated individually in terms of subsidies instead of worrying about an intelligent market design for everyone, as modern regulatory policy dictates.

One can already predict one thing: in the end, all of this will strengthen Lufthansa and weaken competition. The sufferers are likely to be the customers, who in future will have even less choice. And the future will pay higher prices for their tickets.

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