Why the government saved Flybe and two months later let it collapse

Three government ministers agree last minute rescue deal to save Flybe. 

The package included:

1. A possible short term deferral  of £106 million air passenger duty
2. A potential loan of £100 million
3.  A pledge to review Air Passenger Duty

Although the rescue deal was not disclosed Mr Shapps Business Secretary said the move was necessary to protect key routes. Following complaints about Government assistance Flybe has now confirmed some details but there still lacks transparency – what has been disclosed is:

• Shareholders to put in £30million
• The Group is in talks with the government regarding a loan on commercial basis
• The tax deferment amounts to less than £10m and is only for a matter of months

Flybe operate 139 routes which makes this Airline the largest regional Airline in Europe. Thirty Eight percent of these routes are in the UK, which demonstrates how key they are to certain regional economies. Many of these routes are described as “thin”. This is a term used to describe routes that do not benefit from a lot of business use and are often seasonal. Such routes are used by locals and relatives and holidaymakers which limits the ability of the Airline to charge commercial ticket prices.

Flybe has long argued that there should be no Air Passenger Duty as the Airline provides a vital service to certain parts of the UK. Improving connectivity was a key pledge in the Conservative manifesto with the aim to improve infrastructure to bring different parts of the UK economy together. HS2 is budgeted to cost £108 billion. The amount being discussed is a small fraction of this sum. Currently the lowest APT is £13 for domestic routes and higher on other routes.  It is our understanding that the plan is to defer a tax bill of £106 million over three years whilst the group has a chance to complete its restructuring. In recognition of the governments plan shareholders will pump in additional capital.

The government has revenues of £3.7 billion from APT. The rate of tax varies depending on the destination being split into two bands “A” and “B”. Band A covers the UK and Europe the other destinations fall into the higher rate band Group B. The rate also varies on the type of travel falling into three charging bands “Reduced, Standard and Higher Rates”. The Standard charge for band A is £26. Given the Green lobby the government review is unlikely to waive the collection of such taxes. However, helping one Airline would fall foul of EU competition rules. The only option would be to allow additional routes to qualify for tax relief such is the case in the Scottish Highlands and Islands. Currently only one of Flybes route to Newquay is subsidised by the government.

Flybe is the largest regional airline proving critical links to the regions. Flybe is vital to Belfast City Airport and if it failed it would leave only four routes available to local passengers. Other regions in the UK have similar problems such as the Isle of Man and Newquay in Cornwall. In Exeter where Flybe has it’s headquarters the company provides routes to Amsterdam, Paris and Geneva providing the initial link to major hubs allowing passengers to catch other onward flights. The alternative would be a time consuming trek to London’s hub airports.

Flybe has got into difficulty as its aircraft are smaller causing a higher cost per seat.  They also operate from regional airports with only 2% of it traffic running from Heathrow.  Access to the larger hub airports would allow the airline to offer services on the more profitable routes.

Flybe is now owned by Connect Airways. The Airline sold its assets of £2.2m to the consortium in July 2019 . The consortium is made up of Virgin Atlantic , Stobart Air and Cyprus Capital. Under the deal the group agreed to put in £100 million and re brand the Group Virgin Connect which is due to be rolled out this year. What is not clear, is how much is now required so that the Group can remain operational in near future.

There has been much criticism of this deal from competitors and the Green lobby.  The competitors argue that Flybe should not be helped especially when their owners have sufficient capital.   The Green lobby is difficult to argue against and carbon emissions must be reduced.  We can only hope that engineering can significantly reduce pollutant.

Percentage of Scheduled departures
Anglesey 100%, Southampton 95%. Belfast 79%, Exeter 78%, Newquay 66%, Isle of Man 50%, Teeside 44%, Humberside 40%, Aberdeen 36%, Birmingham 31%, Doncaster 30%

Flybe has a large local network which works on vert thin profit margins. Whilst the last meeting with government encouraged the shareholders to continue backing the group.  It appears the shareholders could not agree terms for a government loan.  Coronavirus has hit all airlines with passengers preferring not to travel until the spread is under control.  This has hit Flybe who were already struggling to stay profitable and perhaps hanging on until the government reconsidered the APT in the coming budget.  Against this background confidence slipped away and the group went into administration on 5th March 2020.

Your Rights

Currently the Airline is trading so just keep enjoying the flights.

If your flight is delayed by over three hours you will have rights under EU261/2004 see Flightdelaypays claim calculator
for more details https://flightdelaypay.com/flight-delay-compensation-calculator/

Your rights now the Group is in administration .

If your flight is part of a package deal covered by ATOL you should be covered and have the right to a refund or re-booking.
If you booked a trip via your credit card you will have the ability to make a claim from the credit card provider.
If you paid by Direct debit there is a chargeback scheme that can help so check with your bank

Sources Sky News, BBC News, The Independent and Flybe.com