Are the two crises alike?Â Consider the similarities.Â In each, an unexpected event in a forgotten part of the system ends up having global ramifications.Â The unexpected event occurs in a system that needs constant motion for its effective operation: as long as the securities/passengers can be moved on to the next stage, the system keeps functioning.Â When one part of it stops working, the rest quickly breaks down.Â But there’s more.
Both the finance and airline industries have to balance the tension between 2 parts of their business: the “utility”, the bit that people and governments view as an essential service (payment systems and getting people from A to B) and the rest of the business model that has grown up around that, and at least in the good times, where the big profits are made.Â And although both industries have seen a progressive loosening of government oversight in the last 3 decades, it takes just one crisis to show how quickly the leash can be suddenly pulled back.
Finally, each crisis does a good job of revealing the hidden assumptions: we buy pieces of paper because we’re confident we’re able to sell them, and we get on a plane to somewhere because we’re confident we’ll be able to get back.Â Each industry built up its “illusion of liquidity”.
Then of course, there are the differences.Â We mentioned above the tightening leash on each industry as a crisis developed.Â That on airlines is much tighter.Â Even as banking systems seemed to be dragging down the world economy in late 2008, governments never gave any serious thought to suspending their operations.Â But the airspace was shut down not in the basis of a specific airplane event, but a worst-case scenario.
Second, in contrast to the G20-inspired rush to coordinate responses to the financial crisis, the response to the volcano crisis looks very ad hoc.Â Yes there are some pan-European agencies and the EU, but the ripple effects are all over the world and once one reviews the tales of woe, one sees that passengers are subject to the varied policies and rules for airlines, airports, hotels, visas, and travel agencies. In contrast to the concerns about “financial protectionism”, the airline business does not seem to have characterized by any assumption of equal treatment for all: the airline and the airport is still the flag carrier (even when privately-operated) and where you were when your journey got interrupted mattered a lot.
Finally, back to one similarity between the two crises.Â There was some impatience mixed with satisfaction in the developing world as the financial crisis unfolded: why are we having to deal with a crisis that began in the developed countries?Â And so it is with the airline crisis.Â Born in Iceland, propagated in European hubs.Â While the big countries can and will use the financial crisis to constrain some of their smaller competitors (note the emphasis on “offshore” financial centers), how the volcano crisis plays out will have much more to do with market responses.
One possibility seems worth mentioning.Â There must be more than a few people in the Americas, Africa, and Asia wondering why their journeys need to involve a European hub.Â The airlines in the best position to respond would seem to be those in the Arab Gulf — as long as sandstorms don’t become a bigger problem.Â Anyway, this raises the more general issue for Europe of whether the interests of the (de facto) national airline, the big airports, and the passengers coincide.Â Â Â The current policies — assuming the third item was best served by promoting the second and the first — were concentrating a lot of risk in just a few places.Â Finance and air travel: two industries that could use a little diversification.