In Depth

Why Flybe’s rescue is causing controversy

British Airways owner files complaint with EU over tax deferral

The consortium that owns British Airways has filed a complaint with the European Union over the UK Government’s decision to rescue Flybe by deferring a tax payment that was likely to bankrupt the brand.

Executives at the International Airlines Group (IAG), which also owns Iberia and Aer Lingus, argue that the rescue deal for Flybe breaches state aid rules and gives the struggling airline an unfair advantage.

What has gone wrong at Flybe?

According to recent figures from The Scotsman, Flybe, which launched as Jersey European Airways in 1979, flies 8.5 million passengers each year to 170 European destinations and currently operates a number of domestic routes in Britain between cities which are connected by direct trains.

However, the airline has fallen on hard times and in February 2019 it was bought by the Connect Airways consortium led by Virgin Atlantic, which planned to rebrand it as Virgin Connect.

Since the £2.8m sale, Connect has invested tens of millions of pounds in the troubled carrier, but losses have continued to mount, the BBC reports. This is despite Flybe providing “a vital social and cultural link for many marginal economies”, according to Professor Annette Pritchard, of the Welsh Centre for Tourism Research in Cardiff.

Flybe blamed its 2018-19 slump on “a mixture of rising costs, currency volatility and uncertainty related to Brexit”. It is unclear if the same issues persist. 

What did the government agree to?

A last-minute deal was arranged last night to defer Flybe’s payment of £100m in Air Passenger Duty (APD) until the spring.

The government said it would also review the tax that adds significant costs to most short-haul flights.

The Daily Mail says that while passengers making return journeys to continental destinations pay a flat fee of £13, domestic flyers are charged APD on each leg – there and back – adding up to a total of £26.

Transport Secretary Grant Shapps said the move was necessary to protect key routes.

“The actions we have taken will support and enhance regional connectivity across the UK, so local communities have the domestic transport connections they rely on,” he said.

What is the response to the plan?

The deal has sparked condemnation from other airline brands, as well as the trade body for the rail industry and climate campaign groups.

“Prior to the acquisition of Flybe by the consortium which includes Virgin/Delta, Flybe argued for taxpayers to fund its operations by subsidising regional routes,” IAG boss Willie Walsh said in a statement. “Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline. This is a blatant misuse of public funds.”

Andrew Grice at The Independent says the move will also likely “anger Thatcherites” who believe in low public spending and decreased state interventionism in the market. He notes that ministers have denied a bailout, adding “that would look like the Seventies-style socialism they denounced at the election”. But he insists it is still “a barely disguised bung”.

Also unhappy are climate change activists who, according to the BBC, say APD “should be going up to protect the climate – not down”. Flying is highly damaging to the environment and scrapping or deferring the APD will allow Flybe to lower its ticket prices and encourage more people to fly.

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