Coronavirus: US Senate passes major $1.9tn relief plan

The US Senate has voted to approve America’s third major spending package to deal with the impact of the coronavirus pandemic.

The $1.9tn (£1.4tn) plan passed by 50 votes to 49 on Saturday, and will now head to the House of Representatives where it is expected to be endorsed.

The relief plan has been championed by President Joe Biden, but Republicans have criticised it as too costly.

Mr Biden’s Democratic Party compromised on a key issue ahead of the vote.

There were long discussions over federal unemployment benefit, which Democrats agreed to lower from $400 to $300 a week. The benefit would be extended until 6 September under the plan.

The package also envisages one-off payments worth $1,400 to be sent to most Americans.

America’s worst public health crisis in a century has left nearly 523,000 people dead and 29 million infected, with a current unemployment rate of 6.2%. 

What’s in the package?

The so-called American Rescue Plan allocates $350bn to state and local governments, and some $130bn to schools.

It would also provide $49bn for expanded Covid-19 testing and research, as well as $14bn for vaccine distribution.

The $1,400 stimulus cheques will be quickly phased out for those with higher incomes – at $75,000 for a single person and for couples making more than $150,000.media caption”I’m not sure how we’re going to survive”

The extension of jobless benefits until September, meanwhile, would mark a key reprieve for millions of long-term unemployed Americans whose eligibility for benefits is currently due to expire in mid-March.

The bill also includes grants for small businesses as well as more targeted funds: $25bn for restaurants and bars; $15bn for airlines and another $8bn for airports; $30bn for transit; $1.5bn for Amtrak rail and $3bn for aerospace manufacturing.

What were the sticking points?

While Republicans broadly backed two previous stimulus plans, passed when they controlled both the White House and the Senate under Donald Trump, they have criticised the cost of Mr Biden’s bill.

There was a marathon 27-hour session before the final vote on Saturday, and the 50-49 tally along party lines was indicative of the widespread Republican opposition.

The even split between the parties in the Senate meant that every Democratic senator needed to support the party’s plans.

But on Friday a moderate Democrat, Senator Joe Manchin, objected on the grounds that the huge bill might overheat the economy. It took 11 hours of negotiation throughout the night to come up with a deal.

The compromise on lowering unemployment benefit meant the package could move forward to a final vote.

“It’s been a long day, a long night, a long year, but a new day has come and we tell the American people help is on the way,” Senate Democratic leader Chuck Schumer said ahead of the vote.

Senate Republican Leader Mitch McConnell, however, criticised the aid package. “The Senate has never spent $2tn in a more haphazard way or through a less rigorous process,” he said.

Mr Schumer has predicted that the House will endorse the bill and President Biden will sign it before boosted unemployment benefits expire on 14 March.

How the number of deaths has been falling in the US
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Microsoft hack: White House warns of ‘active threat’ of email attack

The US is expressing growing concern over a hack on Microsoft’s Exchange email software that the tech company has blamed on China.

“This is an active threat,” White House press secretary Jen Psaki said on Friday. “Everyone running these servers – government, private sector, academia – needs to act now to patch them.”

Microsoft said hackers had used its mail server to attack their targets.

It is reported that tens of thousands of US organisations may be impacted.

Ms Psaki told reporters that the White House was “concerned that there are a large number of victims” and said the vulnerabilities found in Microsoft’s servers “could have far reaching impacts”. 

Microsoft executive Tom Burt revealed the breach in a blog post on Tuesday and announced updates to counter security flaws which he said had allowed hackers to gain access to Microsoft Exchange servers. 

The Microsoft Threat Intelligence Center (MSTIC) attributed the attacks with “high confidence” to a “state-sponsored threat actor” based in China which they named Hafnium.

The tech giant said Hafnium had tried to steal information from groups such as infectious disease researchers, law firms, higher education institutions and defence contractors. 

Reuters news agency, citing a person familiar with the US government response, reported that more than 20,000 organisations had been compromised in the US – and many more worldwide.

Brian Krebs, an industry expert and blogger, put the number higher – citing multiple security sources.

“At least 30,000 organizations across the United States – including a significant number of small businesses, towns, cities and local governments – have over the past few days been hacked by an unusually aggressive Chinese cyber-espionage unit that’s focused on stealing email from victim organizations,” he wrote in a blog post.

Mr Krebs warned attacks had “dramatically stepped up” since Microsoft’s announcement. 

News of the breach prompted the US Cybersecurity and Infrastructure Security Agency (Cisa) to release an emergency directive telling agencies and departments to take urgent action. 

Jake Sullivan, the White House National Security Adviser, has also urged network owners to download the security patches as soon as possible.

View original tweet on Twitter

Microsoft has not confirmed the reported figures but said in a further statement on Friday that it was working closely with US government agencies and told customers “the best protection” was “to apply updates as soon as possible across all impacted systems”. 

This is the eighth time in the past 12 months that Microsoft has publicly accused nation-state groups of targeting institutions critical to civil society. 

Microsoft said the attack was in no way related to the SolarWinds attack, which hit US government agencies late last year

Although Hafnium is based in China, it allegedly conducts its operations primarily from leased virtual private servers in the US, Microsoft said. 

China presence

While many US tech firms have had a tumultuous relationship with the Chinese government, Microsoft has maintained a mainland presence since 1992. 

Unlike Facebook and Twitter, Microsoft’s business-oriented social media platform LinkedIn is still accessible in China. 

So, too, is its search engine Bing, although locally-grown Baidu dominates the search market.

Tech Tent: The new ‘space race’ for computer chips

Silicon chips are at the heart of many of the biggest technology stories of our time.

Without them, car plants around the world have come to a halt. The technology to make them is now seen by the United States as a key weapon in its trade war with China. And access to the latest and most-powerful versions will determine who wins the artificial intelligence race.

In this week’s Tech Tent podcast, we look at the semiconductor industry and try to answer five important questions about chips.

What’s behind the current shortages?

From Ford and General Motors in the US, to Honda in the UK, and electric car-maker Nio in China: major automotive companies have had to cut back production due to a shortage of chips. Why?

Well it seems the pandemic is to blame, continually making every prediction about chip demand look out-of-date.

First, it made demand for gadgets soar, as years of digital transformation happened in weeks. 

“We’ve been talking about working from home and 5G and IoT and the cloud for years. And now suddenly it’s a reality,” says Jodi Shelton, chief executive of the World Semiconductor Association.

Meanwhile, sales of new cars fell off a cliff and automotive executives cancelled orders for chips. 

But then, an unexpected rebound in sales caught them flat-footed, along with their chip suppliers.

Jodi Shelton says car-makers with “just in time” supply chains came up against a semiconductor industry that cannot just quickly turn the tap on or off.

“They’re going to have to learn that that’s not really the way it works. These are just not products that are off-the-shelf.”

Who is making the best chips?

The shortages have made one thing clear: there is no longer just one kind of chip.

As demand shifts, so does power in the semiconductor industry.

For decades, Intel – with its marketing slogan “Intel Inside” – was the only chip-maker in the minds of many.

But that is no longer the case. Analyst Richard Windsor of Radio Free Mobile says the world has moved on.

He outlines two trends: the use of chips for data storage, and the growing importance of graphics chips (GPUs), which aren’t just for making games come to life but play a vital role in artificial intelligence applications.

And he points to new superpowers in this industry, in particular the Taiwanese company TSMC.

“TSMC is by far the world’s number one manufacturer of cutting-edge silicon chips at this point in time,” he explains.

“It’s very different from Intel. What Intel does is it designs the chips; makes its own chips; and then sells those chips. What TSMC does is make chips for other people.”

And building chip factories – or foundries as they are known – is a hugely expensive business. Richard Windsor tells us that it can cost as much as $25 billion (£18bn) to open a new foundry with state-of-the art equipment.

What is the most important company in chip-making?

Mr Windsor also talks about the vital role played by ASML, a company that is the only supplier of what is effectively a printing press for the very latest and smallest silicon chips.

“A relatively obscure Dutch company,” is how my colleague Leo Kelion, the BBC’s technology desk editor, described the company in an article last year. ASML liked the description so much that it printed it on t-shirts for staff.

“We build the tools that the carpenter uses to build your house,” says Jos Benschop of ASML, explaining how the likes of TSMC, Intel and Samsung all need its equipment.

When the company was founded in 1984 there were ten big players in the chip lithography market. Now it is the only one left.

“As the technology became progressively more difficult to master, and the investment needed became progressively larger, then you had the survival of the fittest. Fewer and fewer companies were able to keep up.”

But that means ASML is caught in the trade war between the US and China. The Trump administration put pressure on the Dutch government to halt the sale of ASML technology to a Chinese customer. That seems to have worked – shipment of the equipment has been delayed.

Why do chips play a role in the US-China trade war?

As China and the United States battle for supremacy in artificial intelligence, access to equipment that builds the latest AI chips is a key weapon.

Dr Pippa Malmgren, a former advisor to President George W. Bush, says the stakes are as high as they were in another technological battle: the space race.

“The new space race at the geopolitical level is for computational power. Who can gather the most data and process that data the fastest? That is why both China and the US, frankly the EU as well, are spending a lot of money on quantum computers, incredibly fast supercomputers. And all of these things require chips,” she explains.

Taiwan, home of TSMC, is on the front line of this battle. Given its fight to be independent from China, you might think it would do whatever the US wanted.

But Dr Malmgren warns that things are not so simple :”Chinese money is heavily invested in Taiwan.

“And I think if you were to ask, can you extricate Chinese backing from the Taiwanese economy, the answer is that it would be very difficult.”

Is Moore’s Law over?

Since the 1960s, the chip industry has been governed by Moore’s Law, which predicts that the capability of computers will double every two years as manufacturers cram ever-smaller transistors on to their chips.

But given that the transistors are now so unimaginably small, can we expect this pattern to continue?

I asked Sophie Wilson, who in the 1980s played a key role in designing what is now the world’s most popular chip, the Arm processor.

She tells us progress is still possible because the industry keeps on finding new ways of cramming more into a smaller space.

“We’ve reached the end of the road many times. And each time we’ve reached the end of the road, there has been some sort of way out,” she explains.

And the future may be 3D.

“What you’ll see over the next few years is stuff working in three dimensions. We can still up the density in a given volume by building more and more silicon layers on top of each other. The silicon layers are very thin, so you can stack them on top of each other,” she says.

And don’t expect China to opt out of this battle.

As it is denied access to current chip equipment, the Chinese government will pour huge sums into research into new approaches with the aim of leapfrogging the United States in the next era of the chip economy.

Rory Cellan-Jones
Technology correspondent (BBC)

US suspends tariffs on single malt Scotch whisky

The US has agreed to suspend tariffs on UK goods including single malt whiskies that were imposed in retaliation over subsidies to the aircraft maker Airbus. 

Tariffs will also be lifted on UK exports such as cheese, cashmere and machinery.

Washington said the tariffs would be suspended for four months.

On 1 January, the UK dropped its own tariffs on some US goods put in place over a related dispute about US subsidies to Boeing.

‘Sigh of relief’

The Scotch Whisky Association called the suspension “fabulous news”.

Boss Karen Betts said: “The tariff on single malt Scotch whisky exports to the US has been doing real damage to Scotch whisky in the 16 months it has been in place, with exports to the US falling by 35%, costing companies over half a billion pounds. 

“So today, everyone in our industry – from small companies to large – is breathing a sigh of relief.”

However, she said the UK and US would still need to negotiate a long-term settlement to the aerospace dispute.

Airbus A350 XWB

For more than a decade, the EU and US accused each other of propping up their home aviation markets with tax breaks, research grants and other aid.

But tensions flared under former US president Donald Trump, who made imposing new tariffs a central part of his trade policy with both rivals and allies alike.

In 2019, the US put tariffs on £7.5bn of EU goods, including UK products such as Scotch whisky.

Then last November, the EU moved ahead with a plan to hit $4bn (£3bn) of American goods with tariffs as punishment for US subsidies for Boeing.

In a joint statement, the UK and the US said that the suspension would “ease the burden on industry and take a bold, joint step towards resolving the longest running disputes at the World Trade Organization”.

The two countries added that it would also “allow time to focus on negotiating a balanced settlement to the disputes, and begin seriously addressing the challenges posed by new entrants to the civil aviation market from non-market economies, such as China”.

Action in the long running dispute began in 2004, when the US filed a case at the World Trade Organization challenging European loans to help Airbus develop aircraft, and stopped a 1992 agreement covering government support for the two top aircraft manufacturers.

Exclusive: U.S. suppliers to Chinese chip giant SMIC slow to get export licenses

The U.S. government has been slow to approve licenses for American companies like Lam Research and Applied Materials to sell chipmaking equipment to China semiconductor giant SMIC, even as a global shortage has supercharged chip demand, several sources said.

Licenses for U.S. suppliers to ship much of an estimated $5 billion dollars’ worth of parts and components still have not come through, industry sources said, though many companies sought them soon after the company was blacklisted in December. Certain licenses have been granted, including for small numbers of expensive equipment in recent days.

As policy shifts under President Joe Biden, who took over from Donald Trump in January, U.S. government agencies led by new appointees still haven’t completely decided what should be sold to Semiconductor Manufacturing International Corp, which produces chips for Qualcomm and other American companies.

The Trump administration placed SMIC on the U.S. Department of Commerce’s entity list over concerns of SMIC aiding China’s military.

The listing, which requires U.S. suppliers to get a license before shipping goods to SMIC, is unusual because it says most products should be granted on a case-by-case basis. However, equipment that can be used to make only the most advanced, 10 nanometer and smaller chips is likely to be denied licenses.

The administration is supposed to make decisions on license applications within a month, but follow-up questions stop the clock.

“Lam Research is still in the application process and has not yet received a response,” a Fremont, California, company spokeswoman said on Wednesday.

Applied Materials’ chief financial officer said in a February 18 earnings call that their forecast did not assume licenses would come through. A spokesman for the Santa Clara, California based company declined comment on the licenses this week, including whether the comment was still valid.

SMIC did not respond to requests for comment, but the company has said it provides services solely for civilian and commercial end users and that it has no ties to the Chinese military.

Decisions on licenses have been held up as officials ask follow-up questions about applications in part to determine whether the parts or components could be diverted for use in producing items 10 nm or smaller, sources said.

Washington trade lawyer Giovanna Cinelli said many license applications have resulted in “a lot of back and forth, which has elongated the period of review.”

In a statement, a Commerce Department official dismissed the possibility that curbs on SMIC could contribute to the chip shortage, noting that the shortfall was tied to older technologies while SMIC restrictions relate to leading edge technology. The statement did not address the potential impact of delays in licenses for older technology.

SMIC, the largest foundry in mainland China, is an important player in the global semiconductor supply chain, which is under pressure as pandemic lockdowns drive up demand for electronics such as laptops and phones. Last month, it said it could not meet customer demands for certain technologies and its plants have been running “fully loaded” for several quarters.

SMIC’s technological capabilities lag far behind cutting-edge foundries like industry leader Taiwan Semiconductor Manufacturing Co, according to industry sources.

Companies like Applied Materials and Lam Research, two key suppliers of production equipment, submitted numerous license applications to sell to the company. The bulk have not yet been acted on, industry sources said.

A spokeswoman for Entegris, a Massachusetts company that submitted license applications to sell to SMIC, told Reuters late Wednesday that it had received its first license within the past week.

Other companies that ship to SMIC include California’s KLA Corp and Axcelis Technologies in Massachusetts. A KLA spokeswoman declined to comment on licenses, and while Axcelis’s CEO spoke of “uncertainty” related to its licenses on Feb. 11th, a company spokeswoman declined to provide an update.

Qualcomm, which uses the Chinese foundry to produce chips with decades-old technology, put in applications for tools SMIC needs to produce them, just in case equipment makers don’t get theirs, an industry source said. But they have not come through yet, the source added.

In September, SEMI, a worldwide industry group, said in a draft letter seen by Reuters that SMIC accounts for as much as $5 billion in annual U.S. sales.

U.S. private payrolls rise less than expected in February

U.S. private employers hired fewer workers than expected in February, suggesting the labor market was struggling to regain speed despite the an nation’s improving public health picture.

Private payrolls increased by 117,000 jobs last month, the ADP National Employment Report showed on Wednesday. Data for January was revised up to show 195,000 jobs added instead of the initially reported 174,000.

Economists polled by Reuters had forecast private payrolls would increase by 177,000 jobs in February.

The ADP report is jointly developed with Moody’s Analytics. It has a very poor track record predicting the private payrolls count in the government’s more comprehensive, and closely watched, employment report because of methodology differences. The ADP report’s initial 174,000 private payrolls tally for January way overshot the Labor Department’s total of only 6,000.

“It remains difficult to use the ADP data as a signal for forecasting the Labor Department employment figures,” said Daniel Silver, an economist at JPMorgan in New York.

Nevertheless, the report is still followed for clues on the labor market’s health.

The labor market has been slow to regain traction as some restrictions on services businesses have been rolled back amid a decline in new COVID-19 infections and hospitalizations.

The number of Americans filing initial claims for weekly state unemployment benefits remains way above its 665,000 peak during the 2007-09 Great Recession. At least 19 million people are collecting unemployment checks.

The lack of significant improvement in the labor market is also despite nearly $900 billion an additional pandemic relief provided by the government in late December, which boosted consumer spending and positioned the economic for faster growth in the first quarter. That has led to concerns of labor market scarring that could take years to heal.

According to a Reuters poll of economists, the government will likely report on Friday that nonfarm payrolls increased by 180,000 jobs in February after rising only 49,000 in January.

Hopes for a pick-up in hiring were supported by a survey last week showing consumers’ perceptions of the labor market improved in February after deteriorating in January and December. In addition, a measure of manufacturing employment increased to a two-year high in February.

The economy has recovered 12.3 million of the 22.2 million jobs lost during the pandemic. Employment is not expected not return to its pre-pandemic level before 2024.

Coronavirus: Texas and other states ease rules despite warnings

Texas will lift its mask requirement and allow businesses to reopen at full capacity next week, Governor Greg Abbott has announced.

A woman receives a Covid vaccine in Jim Hogg County, Texas
image captionStates across the US have started to ease Covid-19 restrictions, causing concern among health officials

“It is now time to open Texas 100%,” the Republican said on Tuesday.

Texas is the largest US state to end its mask mandate. Mr Abbott has faced criticism from his party over the measure, which was imposed last July.

But the administration of US President Joe Biden has made it clear coronavirus restrictions are still necessary.

The announcement in Texas came as similar rules were lifted in other states, including Michigan, Louisiana, and Mississippi, which also ended its mask mandate.

The roll-out of vaccinations against Covid-19 has boosted confidence in a return to pre-pandemic life in the US.

On Tuesday, President Biden said the US was on track to have enough vaccines for every adult in the country by the end of May.

Yet the wave of reopenings has put states at odds with the Biden administration and its senior health officials, who have reacted with dismay to the relaxation of coronavirus measures at a precarious time in the pandemic.

On Monday the director of the US Centers for Disease Control and Prevention (CDC) warned of a “potential fourth surge of cases” if the country lapsed into complacency.

Covid-19 data shows that, while infections and deaths have declined in recent weeks, they are still at high levels relative to other countries.

In total, the US has recorded more than 28 million infections and 516,000 deaths related to Covid-19, according to data collated by Johns Hopkins University.

What did the Texas governor announce?

Mr Abbott issued an executive order that rescinded most of the coronavirus measures he imposed earlier in the pandemic.

The new executive order, which is to take effect on 10 March, lifts all mask requirements and forbids local authorities from penalising residents who do not wear a face covering. 

It removes all restrictions on businesses in counties without a high number of Covid-19 patients in hospital.

Greg Abbott (file picture)
image captionMr Abbott has been under pressure to lift the restrictions

“Too many Texans have been sidelined from employment opportunities,” Mr Abbott said in a speech at the Chamber of Commerce in the city of Lubbock. “Too many small business owners have struggled to pay their bills. This must end.”

He said that with increased vaccinations and improved treatment for Covid-19, the state was “in a far better position now”.

But, he added, “Covid has not suddenly disappeared”. Following weeks of decline, coronavirus infections and related deaths are creeping up again in Texas, data from the Covid Tracking Project showed.

Texas has recorded more than 43,000 deaths related to Covid-19, the third-highest state toll in the US.

Texas puts White House relations to the test

Angelica Casas, reporting from San Antonio, Texas

Governor Abbott’s announcement was no surprise to Texans. After all, the state’s pandemic response has been political from the start.

The state’s Republican leadership favoured former President Donald Trump’s relatively relaxed approach to imposing restrictions. But that created tension with local officials in the state’s major cities, which all lean Democrat.

It was control of the disease vs control of the economy. Mask requirements vs maintaining personal liberties. And when the surges came, state politicians were more reactive than proactive.

A year later, not much has changed. The state’s death toll and current case rate are still among the highest in the US. That’s why critics say Governor Abbott’s decision does not follow the science.

So the decision will be a test to the state – but also to Mr Abbott’s relationship with President Biden, who has addressed the pandemic with more urgency than his predecessor.

What about other US states?

Individual states are in charge of public health policy in the US. At the start of the coronavirus pandemic, most introduced restrictions on businesses and travel.

About 35 required face coverings to be worn in public places – either or outdoor – although enforcement of these mask mandates has been patchy.

With cases and deaths falling sharply in recent weeks, several states have begun easing the restrictions.

Shortly after Mr Abbott’s announcement, Mississippi Governor Tate Reeves said he would do the same in an even shorter time frame.

“Starting tomorrow, we are lifting all of our county mask mandates and businesses will be able to operate at full capacity without any state-imposed rules,” Mr Reeves said.

Health experts have warned that the pandemic was far from over and cases could pick up if curbs were lifted too soon.

President Joe Biden speaks about the administration's response to the coronavirus pandemic at the White House in Washington
image captionPresident Biden has urged Americans to remain vigilant against the threat of the virus

President Biden – in contrast with his predecessor Mr Trump – has made fighting the virus a priority for his administration.

On Tuesday, Mr Biden said he was upbeat about reaching his goal of delivering 100 million Covid-19 vaccine doses in his first 100 days in office, but urged Americans to remain vigilant in wearing masks and observing social distancing.

“Today’s announcements are a huge step in our effort to beat this pandemic,” Biden said in a televised statement from the White House. “But I have to be honest with you. This fight is far from over.”

How has Covid affected the US?

  • The 28.7 million total confirmed US infections is nearly double that of second-highest India (11 million) and Brazil (10.5 million), according to Johns Hopkins University research
  • But the US ranks ninth in terms of deaths per 100,000 population, behind countries such as the UK and Italy
  • At least 90,000 more Americans are expected to have died with the virus by 1 June, an Institute for Health Metrics and Evaluation (IHME) projection says. By late May, the virus will kill around 500 Americans per day – down from approximately 2,000 now
  • Hospital admission rates have fallen sharply since January
  • The growing number of new variants, which could spark further outbreaks, remains a concern

U.S. ITC to probe some cellular devices made by Samsung & Motorola Mobility

The U.S. International Trade Commission on Tuesday said it was probing certain LTE-compliant cellular devices made by Samsung Electronics Co Ltd and Lenovo Group Ltd-owned Motorola Mobility following a complaint.

The agency said it was launching the investigation following a Feb. 1 complaint filed by Austin, Texas-based Evolved Wireless LLC that alleged patent infringement.

U.S. budget airlines plot pandemic breakthrough

The COVID-19 pandemic has reshaped the global travel landscape and U.S. no-frills carriers are pouncing.

As legacy airlines shrink to contain costs, budget carriers Spirit Airlines, Allegiant Travel and privately-owned Frontier Airlines are resuming pilot hiring and expanding networks to seize turf dominated by larger rivals.

The three airlines’ combined U.S. market share, which barely topped 10% before the pandemic, could grow by 10 percentage points this year alone, said René Armas Maes of UK-based consultancy MIDAS Aviation.

“Ultra low-cost carriers want to attack head-to-head; they believe they’re in a better position to rebuild travel demand,” he said.

Las Vegas-based Allegiant has told prospective pilots whose hiring was halted as the pandemic unfolded: “We have recalled all of our furloughed pilots and are now planning for exciting growth opportunities.”

Spirit and Frontier have posted pilot job ads and are taking delivery of Airbus A320neo jets that could open longer routes, including coast-to-coast flying traditionally controlled by legacy, or full-service, carriers.

By contrast, American Airlines has gone from hiring 100 pilots a month before the pandemic to threatening 1,850 furloughs without fresh government assistance on labor costs.

Allegiant also stands to benefit if Congress approves a third round of COVID-19 payroll relief for U.S. airlines, but “would be just fine without it,” Chief Financial Officer Greg Anderson told Reuters.

“The leading indicators suggest that there is a nice growth trajectory for Allegiant,” said Anderson, citing Google searches, indices that track changes in city populations and infection and vaccination trends from the Institute for Health Metrics and Evaluation.

He said customer surveys also show an increased preference for smaller airports and non-stop flights, cornerstones of budget carriers’ business models.

TRIAL AND ERROR

Ultra low-cost carriers, or ULCCs, offer a no-frills experience at rock-bottom fares and charge heavily for extras like bags. They wage fare wars and are pervasive in Europe’s fragmented market but have lagged in the United States.

ULCCs are a tier below carriers like Southwest Airlines, which pioneered the low-cost concept in the 1970s and has grown to become the leading domestic airline. It provides free beverages and checked bags but keeps costs low in part by flying a single fleet-type of Boeing 737s.

U.S. mainline legacy carriers American, Delta Air Lines and United Airlines have diverse fleets that include expensive wide-body jets geared for the kind of business and international travel that has suffered most in the pandemic.

American’s unit costs excluding fuel, a key metric of efficiency, were $0.18 per available mile in 2020, more than double that of budget rivals like Allegiant, according to data compiled by financial services firm Raymond James.

This means Allegiant, which primarily uses second-hand planes and only flies on peak travel days like weekends, can more easily profit on discount fares.

And whereas legacy carriers use a hub-and-spoke network that shuttles people through costly big-city airports, the ULCC business model is based on point-to-point travel to smaller airports where they outsource much of their infrastructure.

Allegiant’s fixed costs account for just around a quarter of its total.

That flexibility helps budget carriers open new routes on a trial-and-error basis. During the pandemic, for example, they have pivoted toward beach and mountain destinations.

“Then if the route is not performing, they won’t hesitate to shut it down,” said George Dimitroff of consultants Ascend by Cirium.

But there are risks.

American, United and Delta have also shifted flights during the pandemic to pick up leisure demand and their market power and geographical reach remain formidable.

Competing with them can lure upstart airlines into relaxing cost discipline – a move described as a “path to hell” by budget airlines entrepreneur Bill Franke, who championed the ULCC model.

Together the three large airlines control around 60% of domestic travel and could chase away rivals on smaller routes if they choose, industry critics said.

But they are more burdened by debt than the ULCCs and continue to burn through millions of dollars every day, hampering their ability to grow, the critics said.

BUDGET SHIFT

Beyond low fares, experts said the pandemic has given budget carriers a fresh argument for previously wary customers.

Traditional airline perks like catering services have lost their luster in an era of masks, and budget airplanes feature the same hospital-grade aircraft filtration systems as others.

And they could benefit from more cost-conscious small and medium sized businesses changing travel policies to favor lower-cost airlines, albeit constrained by their more limited flying through large hubs.

“More price-sensitive travel will be the new normal for the next couple of years at least,” Armas Maes said.

Even so, today’s outsiders will face a competitive cycle.

After the last downturn, low-cost carrier JetBlue Airways grabbed market share from American on the U.S. east coast. Now it is grappling with competition from ULCCs and is teaming up with its old rival.

Boeing to build pilotless fighter jets for U.S. and Australian Air Force

Boeing Plane-maker will use a pilotless, fighter-like jet developed in Australia as the basis for its U.S. Air Force Skyborg prototype, an executive at the plane maker said on Tuesday.

The “Loyal Wingman”, the first military aircraft to be designed and manufactured in Australia in more than 50 years, made its first flight on Saturday under the supervision of a Boeing test pilot monitoring it from a ground control station in South Australia.

Boeing’s Loyal Wingman is 38 feet long (11.6 metres), has a 2,000 nautical mile (3,704 km) range and a nose that can be outfitted with various payloads. The plane can also carry weapons and act as a shield to help protect more expensive manned fighter jets.

The U.S. Air Force in December awarded multi-million dollar contracts to Boeing, General Atomics, Aeronautical Systems, Kratos Defense and Security Solutions to produce unmanned aerial prototypes that can team with crewed jets.

“The airpower teaming system is the basis for our Skyborg bid,” Boeing airpower teaming programme director Shane Arnott told reporters. “Obviously the U.S. market is a big market. That is a focus for us, achieving some sort of contract or programme of record in the United States.”

Defence contractors are investing increasingly in autonomous technology as militaries around the world look for cheaper and safer ways to maximise their resources.

Australia, a staunch U.S. ally, is home to Boeing’s largest footprint outside the United States and has vast airspace with relatively low traffic for flight testing.

The Australian government said on Tuesday it would invest a further A$115 million ($89 million) to acquire three more Loyal Wingman aircraft for the Royal Australian Air Force (RAAF) to develop tactics for using the jets with crewed planes, on top of its initial investment of A$40 million.

“Our aim with Boeing is to understand how we can get these aircraft to team with our existing aircraft to be a force multiplier in the future,” RAAF Air-Vice Marshal and head of air force capability Cath Roberts said.

Britain in January signed a GBP 30 million ($42 million) contract with the Belfast unit of Spirit AeroSystems for a similar type of pilotless aircraft to have a trial flight in the next three years.

During the test flight in Australia, the Loyal Wingman took off under its own power before flying a pre-determined route at different speeds and altitudes to verify its functionality and demonstrate the performance of the design.

Arnott said that three Loyal Wingman aircraft would be used for teaming flights this year and that the Australian government’s order would take the number available to six.

Boeing has said up to 16 Loyal Wingman jets could be teamed with a crewed aircraft for missions.

($1 = 1.2900 Australian dollars)

($1 = 0.7200 pounds)