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Pros and cons of keeping Flybe flying high

Flybe

Published on 15 January 2020

The government has agreed a rescue plan for troubled regional airline Flybe.

Ministers agreed to work with Flybe to figure out a repayment plan for a significant tax debt that is thought to top £100m.

But while it is hoped the move will save jobs and ease customer concerns, rival airlines have criticised the move, with the chief executive of the owner of British Airways claiming it is a misuse of public funds.

Professor Lawrence Bellamy, Academic Dean, Faculty of Business, Law and Tourism at the University of Sunderland, here weighs up the pros and cons of keeping Flybe in the air.

He said: “The airline industry is no stranger to corporate failure and Flybe have been struggling for some time, even under their experienced new ownership.

“The sector is highly regulated, requires substantial capital investment, is subject to operating cost fluctuation risk, is heavily taxed and has intense competition, with carriers trying to protect route niches.

“In addition environmental concerns are adding further pressure as customers look at the green credentials of carriers and alternatives including not travelling.

“For Flybe then any support offered by the Government could be considered as anti-competitive by other carriers, and so has to be equitably and justifiably administered and, in terms of tax-breaks, there is the equivalent loss to the Treasury to consider.

“Of course it is in the interest of the Treasury to support the ongoing viability of businesses within this caveat.”

As part of the agreement, Flybe's shareholders, which include Virgin Atlantic and Stobart Group, have agreed to put more money into the business.

The government has promised to review the £26 air passenger duty that is levied on domestic UK return fights, which has added to the airline's losses.

Professor Bellamy said: “The further investment of cash by the owners is indicative of their understanding that this is a viable business and the previous purchase price indicates something of a bargain entry to the market, albeit taking on debts.

“The importance of Flybe as a regional carrier is significant, as it does provide connectivity within the UK between major conurbations which are not always well-served by alternative transport methods, with projects such as HS2 a long way from being implemented and completion still questionable.

“If the UK is to maintain competitiveness then the North needs to be fully engaged and until such time as other infrastructure becomes viable, then services such as those offered by Flybe remain not only useful for domestic, but also for business purposes.

“This is a long-term consideration against the short-term issues of consumer impacts and unwanted job losses, which add to the concerns of a flat economy.”