The collapse of British regional airline Flybe leaves passengers stranded, 2,400 jobs in question and spells economic disaster for large parts of the UK.
Though the airline has remained tight-lipped over the cause for the bankruptcy, it is widely believed to be due to a downturn in demand associated with the coronavirus outbreak.
However, Flybe has long been plagued by fierce marginal competition, volatile fuel costs, and – more recently – a weakened pound.
The company was rescued from collapse in January, reaching a deal with the UK government that allowed the LCC to defer the payment of a £106 million tax bill.
The January deal also secured a promise from the government to review air passenger duty, and prompted additional investment in the company from shareholders.
Less than 24 hours after the rescue package was announced, International Airlines Group (IAG), parent company of British Airways, filed a complaint with the EU’s competition directorate, arguing that the move constituted state aid.
“[Connect] now want the taxpayer to pick up the tab for their mismanagement of the airline,” IAG said.
The government’s support for Flybe was justified by the provision of vital air links to and from regional Britain, often on routes deemed unprofitable by other airlines. Under agreement with the National Health Service (NHS), for example, Flybe transported 17,000 patients a year from the Isle of Man to Liverpool for hospital treatment.
Certain of the airline’s routes – such as the Newquay-London flight – were subsidised by the government.
Aviation analysts are arguing that, even despite government support, the writing has been on the wall for some time now. FlightGlobal economist Peter Morris, for example, told the BBC in 2017 that Flybe was “sandwiched” between the market share of break-out ULCCs like EasyJet and short-haul flights operated by network carriers like British Airways.
“For example, it might fly from Southampton to Amsterdam, but it’s not a major trunk route, so it doesn’t have enough corporate flyers. But if it gets to a critical mass, then low cost airlines will join in and fly those routes at lower costs,” Morris said. “If you are successful, either group will come after you.
Flybe was publicly floated for £215 million in December 2010, before being purchased by the Connect Airways consortium in January 2019. As a sign of the airline’s woes, the sale was finalised for just £2.2 million.
At the time, Connect’s shareholders – Virgin Group, hedge fund Cyrus Capital, and Stobart Aviation – agreed to contribute a further £100 million to ensure the airline’s continuance through to summer 2020. Some experts have suggested that this move banked on a reduction in APD (which still stands at £26 per passenger).
Data released by the International Air Transport Association (IATA) shows global passenger traffic data for January 2020 to be the slowest monthly increase since the 2010 volcanic ash crisis in Europe.
According to IATA boss Alexandre de Juniac, “Airlines are experiencing double-digit declines in demand, and on many routes, traffic has collapsed. Aircraft are being parked, and employees are being asked to take unpaid leave.”
Despite being largely focused on domestic travel, it is understood that the coronavirus (COVID-19) outbreak saw Flybe bookings tumble 35 per cent in a matter of days. Negotiations with the government, which allegedly sought an additional £100 million loan, stalled. This was the final blow for Flybe.
Other airlines have voiced concerns over drops in earnings. Ryanair chief executive Michael O’Leary, who predicted weeks ago that the coronavirus was likely to spell the end for a European airline, said that the virus would have a “meaningful impact” on earnings for the quarter.
“At the moment we’re expecting a 10 per cent decline in bookings through the months of April and maybe May. We could be down about 2 million passengers over that period,” O’Leary told Reuters.