## Pacific Island Airlines: Flying on Empty?

_IMF Blog, August 18, 2021_

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**Canonical URL:** [Pacific Island Airlines: Flying on Empty?](https://www.imf.org/en/blogs/articles/2021/08/18/pacific-island-airlines-flying-on-empty)

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## Bibliographic details
- Authors: Vybhavi Balasundharam, Leni Hunter
- Published: August 18, 2021

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### Background and context
- Photo credit: Antonistock by Getty Images
- COVID-19
- Vybhavi Balasundharam, Leni Hunter
- August 18, 2021
- With virtually no international travel since March 2020, national airlines in the Pacific face mounting financial difficulties.
- Pacific Island countries rely on airline connectivity for tourism, education, employment opportunities, access to healthcare, and delivery of goods and services.
- Many Pacific Island countries have state-owned national airlines that cater to both domestic and international markets.

### Market share and pre-pandemic performance
- National carriers are typically:
  - the sole provider of domestic routes and a major provider of international routes.
  - accounting for over 60 percent of the seat capacity in Fiji, Vanuatu, and Papua New Guinea, and 100 percent of the routes in Nauru.
- Financial losses and weak profitability were long-standing concerns for several Pacific airlines:
  - Only Fiji Airways has made consistent profits over the past six years.
  - Fiji Airways is the only national airline in the Pacific Island countries that is not fully government-owned (Qantas Airways has a 46 percent stake).

### Restructuring history and vulnerability
- The majority of national airlines had at least a moderate overall risk rating prior to the pandemic.
- Many have already been through one or more restructurings and remain extremely vulnerable to external shocks.
  - Example: Air Vanuatu was most recently restructured in 2016, following damages from Tropical Cyclone Pam, and is now undergoing another restructuring to recover from the COVID-19 crisis.

### Government exposure and fiscal risks
- Governments are directly exposed to local airlines by virtue of state ownership and were often providing financial support even before the pandemic.
- Direct government support has been large relative to GDP in several cases, diverting resources from other development needs.
- Indirect support includes implicit guarantees on loans from financial institutions such as national provident (social security) funds.
- Governments have struggled to monitor and contain risks from national airlines due to:
  - inadequate governance frameworks,
  - lack of oversight capacity,
  - lack of transparency from the airlines that undermines the ability to assess potential risks.
- The pandemic has forced governments to increase support of national airlines; for some, continued losses represent significant quasi-fiscal liabilities.

### Outlook and recovery timing
- Tourism is unlikely to reach pre-COVID-19 levels prior to 2023.
- Given these conditions, airlines will struggle to improve financial performance in the near term.

### Policy recommendations and governance priorities
- Recovery presents an opportunity to overhaul governance and oversight of national airlines to mitigate future risks.
- Priorities to mitigate risk to government balance sheets:
  - Greater transparency and accountability in the running of national carriers.
  - Rigorous oversight in the difficult months ahead.
  - Transactions between the government and the national airline should be disclosed in the annual budget and in quarterly budget reports.
  - Audited financial statements of the airlines need to be published in a more timely manner.
  - Strengthen independent oversight units that monitor and mitigate risks from state-owned enterprises, including national airlines.
  - Ensure sufficient capacity in oversight units, along with comprehensive governance laws and effective enforcement.

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*Pacific Island Airlines: Flying on Empty?, Vybhavi Balasundharam and Leni Hunter, IMFBlog, August 18, 2021.*

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## References

- [recent IMF staff research](https://www.imf.org/en/Publications/WP/Issues/2021/07/09/Managing-Fiscal-Risks-from-National-Airlines-in-Pacific-Island-Countries-461844)

_Source: https://www.imf.org/en/blogs/articles/2021/08/18/pacific-island-airlines-flying-on-empty_