BUSINESS NEWS
Rival airlines denounce ‘misuse’ of public money
Ian Taylor
Rival airlines reacted furiously to government concessions to keep Flybe flying in a deal announced on Tuesday of last week. Willie Walsh, chief executive
of British Airways owner IAG, denounced a “blatant misuse” of public funds and confirmed he had submitted a complaint to the European Commission. He pointed out Flybe’s owners
include US carrier Delta, which owns almost half of Virgin Atlantic, and said: “Virgin/Delta want the taxpayer to pick up the tab for their mismanagement of the airline. “Flybe’s precarious position makes
a mockery of the promises the airline, its shareholders and Heathrow have made about the expansion of regional flights if a third runway is built.” IAG also accused the government
of a “lack of transparency” and confirmed it had submitted a Freedom of Information request to
HM Revenue & Customs and the Department for Transport. Ryanair boss Michael O’Leary also
denounced the rescue. He said: “The absurd claim by business secretary Andrea Leadsom that the Flybe business model is viable is baseless.” In a letter to chancellor Sajid
Javed, he wrote: “This rescue of the billionaire-owned Flybe is in breach of competition rules, in breach of state aid rules, and an unnecessary misuse of government funds.” He described Flybe’s operations
Michael O’Leary
as “a failed business model” and threatened to launch legal proceedings against the government. EasyJet chief executive Johan
Lundgren said: “We don’t support state funding of carriers. Taxpayers should not be used to bail out individual companies when they are backed by well-funded businesses.” Alistair Rowland, chief retail
officer for specialist business at The Midcounties Co-operative and chairman of Abta, said: “I’m pleased Flybe didn’t fail. There would have
Flybe at a glance
Z Flybe operates 40% of domestic flights with a fleet of 72 aircraft.
Z It flies to 26 UK airports.
Z More than 50% of its services are to and from five airports: Manchester, Birmingham, Belfast City, Southampton and Edinburgh.
Z Ten UK airports rely on Flybe for more than half their flights, with 80% or more at Exeter, Belfast City and Southampton.
Z Flybe’s subsidised flight to Anglesey from Cardiff is the airport’s only service.
Z The airline carried eight million passengers last year.
Z It lost £9.4 million in 2018 and £48.5 million in 2017, on revenue of almost £753 million.
been a huge gap in internal flying. The last thing we needed was another failure. “But having said that, I can
understand easyJet and Ryanair saying they want the same. [The deal] did not look fair.” The bailout was also attacked on environmental grounds.
COMMENT: DEAL DOES NOTHING TO TRANSFORM FLYBE’S ECONOMICS
The government stirred a hornets’ nest with its agreement to rescue Flybe from imminent collapse. Rival airline bosses cried ‘foul’
and they have a point. A Downing Street spokesperson insisted: “There has been no state aid for Flybe.” Yet the government’s action was in stark contrast to the stance it took in relation to Thomas Cook last year. However, it looks no
more than a short-term fix for a perennially
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troubled business. Analysts suggest it will keep Flybe operating for no more than a few months. Cutting APD on domestic return
flights so it’s charged solely one way would save Flybe £53 million a year, assuming it did not pass on the savings to passengers. If the government decides
to provide ‘public service obligation’ (PSO) subsidies on more regional services, that would also help. Flybe’s owner Connect
Airways also agreed to inject new capital, confirmed as “more than £30 million”. That is in addition to the £110 million apparently already invested since the consortium’s takeover. Yet my understanding is Stobart, despite noting it “has invested £45 million”, contributed no cash last year – instead contributing the assets of Stobart Air, which operates on behalf of Flybe from Stobart-owned Southend airport, and aircraft leasing business Propius. None of what is proposed appears set to transform the economics of
Flybe’s operation. It also does not address two striking contradictions. One is that part-owner Virgin
Atlantic wants feeder services into Heathrow and Manchester, while Stobart wants traffic at Southend. The other is the fact that every
analyst agrees Flybe must slash its network and fleet to stem the losses. But government support depends on maintaining a significant regional net- work including unprofitable routes.
Ian Taylor, executive editor 23 JANUARY 2020 79
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