UK regional airline Flybe has reached a new peak of crisis today, as it looks set to be denied the £100m rescue loan requested from the British government. The airline had previously secured a ‘holiday’ from paying its Air Passenger Duty, but was hoping for further public funding to get it through the current financial crisis. A slump in bookings due to the coronavirus outbreak is also hampering efforts to return it to profitability, with some saying a collapse could come ‘within days’.
No £100m rescue loan
The Financial Times is reporting today that Flybe is looking highly unlikely to be granted a £100m ($128m) state loan from the UK government. The loan was part of a rescue package deal discussed back in January, which included the airline taking a ‘holiday’ from its Air Passenger Duty (APD) payments.
At the time, the potential for a loan was discussed as well as talks around reforming the UK’s APD policies. The decision on the loan was originally expected in early February, but has still not been made today. The Financial Times reports that reshuffling in the government had slowed things down.
Now, it seems highly unlikely that the loan will be approved, leaving Flybe with nowhere left to run. Having mortgaged most of its assets last year to its new owners, Connect Airways, providing a loan to Flybe doesn’t make much sense on commercial terms.
The last resort for the struggling regional carrier is a deep cut to the UK’s APD, which could allow it some breathing room to shore up its finances. The airline argues that most of its competitors pay APD in one direction only, a charge of £13 per passenger per flight. However, as Flybe provides some 40% of the UK’s domestic services, it has to pay a larger proportion as it pays APD at both ends.
Of the £250m paid in APD from domestic routes in the UK, £106m is paid by Flybe. The airline is pushing for this to be halved to £6.50 for domestic flights, which could make all the difference to the struggling airline. Next week’s Budget is set to reveal whether an APD reform is to take place or not.
Could collapse ‘within days’
Numerous outlets are reporting that Flybe could be much closer to collapse than we think. Sky News suggests a collapse could come in just days, as the airline struggles with a coronavirus related slump in its bookings. The airline has reportedly renewed calls for the government to grant the requested loan, saying that the situation is ‘urgent’ and it requires a decision ‘in days’.
If Flybe does collapse, it would leave around 2,000 people out of a job and drastically damage the UK’s regional connectivity. Of the 120 routes flown by the airline, it says 88 are not flown by any other carrier.
It doubts any rival airline would take up services on its routes if it were unable to operate them. However, the Financial Times reports that Whitehall is drawing up contingency plans to keep critical routes going in the event of Flybe’s failure.
The airline was bought out by a consortium including Virgin Atlantic and the Stobart Group last year, calling itself Connect Airways. Flybe was set to undergo a rebrand to Virgin Connect later this year, and to be reformed into a feeder airline for Virgin’s long haul operations.
To date, Flybe’s owners have not come forward with any rescue plan or funding for the airline. Rival airlines have been outspoken on this matter, saying they should be afforded the same state aid as the floundering regional airline. Ryanair’s Michael O’Leary called the APD ‘holiday’ a “nasty cover up subsidy to billionaires”, while IAG’s Willie Walsh branded it a “blatant misuse of public funds”.
Do you think the UK government should rescue Flybe, or is it already doomed to failure? Let us know in the comments.