Last week, Flybe reached a rescue deal with the U.K. government after it was at risk of bankruptcy, leading competing airlines to voice their complaints.
According to Sky News, the deal consisted of an air passenger duty (APD) break given to Flybe by deferring more than $130m USD / £100m GBP of APD payments.
This has caused many competitors to be unhappy with the action from the government, with many threatening legal action. One example is Ryanair, whose boss Michael O’Leary has written a letter to Sajid Javid, the UK’s Chancellor.
Michael O’Leary voices concern
O’Leary claims the deal “breaches state aid and competition law” according to The Daily Mail. He continues to say that the airline is a ‘billionaire boys club’ and suggests the government extends the “tax holiday” to other airlines. He believes the airline will “undoubtedly fail” once the subsidy ends.
O’Leary even went on to say that his own airline could’ve stepped in to cover Flybe routes, as one of the key reasons the airline was bailed out is its connections to regions that wouldn’t have otherwise been served by an airline. One such route, Newquay in Cornwall to London, is funded by an EU Public Service Obligation subsidy.
Other airlines boycotting the bailout
However, Ryanair isn’t the only airline voicing its concerns over the bailout. The International Airlines Group (IAG), which owns British Airways, has filed an official complaint to the European Commission claiming the deal breaches state aid rules and is “a blatant misuse of public funds”, according to The Guardian.
The CEO of easyJet, Johan Lundgren, said, “Taxpayers should not be used to bail out individual companies, especially when they are backed by well-funded businesses.”
Is Flybe fit for purpose?
In April 2019, Flybe cancelled multiple flights due to financial concerns. The airline has also cut routes and pulled out of airports across Great Britain, such as Doncaster Sheffield Airport. This removal of services is concerning when Connect Airways is committed to making the airline “a fully-fledged UK network carrier”, which would mean improving links across the whole of the country both domestically and into Europe.
Richard Branson has been criticized for having Flybe, now part-owned by his airline Virgin Atlantic, bailed out. This in particular following comments he made when British Airways was almost rescued by the government, stating “loss-making and inefficient airlines should be allowed to go the wall”.
The APD deferral means that a levy on passengers imposed on taking flights from UK airports will have its payment to the government delayed. Flybe has been a long critic of APD, claiming it hits them particularly hard as it affects most of its flights.
The government under scrutiny
The government has also come under heat for bailing out Flybe after it left Thomas Cook without emergency funding in September, causing over 22,000 people to be unemployed worldwide and leading the largest repatriation operation to go into effect. Transport minister Grant Shapps has praised Flybe for connecting communities with valued services, which could be why the government decided it was necessary to rescue the airline.
According to Reuters, the U.K. Prime Minister Boris Johnson said he would ensure the country has the regional connectivity it needs when commenting on the Flybe bailout. In a BBC television interview, Johnson went on to say that,
“It is not for the government to step in and save companies that simply run into trouble, but be in no doubt that we see the importance of Flybe in delivering connectivity across the whole United Kingdom,”
Flybe was recently acquired by Connect Airways, a consortium of Virgin Atlantic, Stobart Group and Cyrus Capital. The new owner will lead Flybe to rebrand as Virgin Connect in the coming months.
Will the APD deferral help Flybe be sustainable in the long-term? Will Connect Airways be successful in connecting the U.K., or could it follow Branson’s luck with Little Red? We’ll have to wait and see.