Two of Europe’s largest airline groups have threatened legal action over a proposed government-backed rescue of small British regional carrier Flybe. The UK government confirmed earlier this week that it would carry out a review of ‘Air Passenger Duty’ – a form of passenger tax – in order to help secure the future of the loss-making and heavily indebted Exeter-based airline. The move has drawn ire from both Ryanair and International Airlines Group (IAG).
Calling the proposed rescue deal a “tax holiday”, the chief executive of Ryanair said he was “deeply concerned and shocked” by reports of the bailout. Michael O’Leary warned any government support would distort fair competition and warned the government that it would launch legal action for breaching European competition law.
Meanwhile, IAG which owns both British Airways and Iberia has already filed a formal complaint with Europe’s competition watchdog over plans to save Flybe. Outgoing IAG chief executive Willie Walsh described the proposed rescue as a “blatant misuse of public cash”.
Despite strong words from the likes of Ryanair and IAG, the UK-government hasn’t actually said what form the rescue will yet take, simply saying that talks with Flybe are ongoing and that a review of APD will be concluded in time for a new government budget to be announced in March.
Flybe has said it will continue operating normally while the review and talks are ongoing.
Air Passenger Duty currently costs between £13 and £78 on short European routes depending on the class of service and is paid by passengers in addition to the airline airfare and other taxes. In 2018, APD raised around £3.5 billion for the UK government.
Flybe has been losing around £20 million a year before a private consortium consisting of Virgin Atlantic, as well as Cyrus Capital Partners and the Stobart Group promised to pump £100 million into the ailing carrier. Flybe is expected to rebrand as Virgin Connect later this year.
Despite the fact that Ryanair doesn’t currently operate any domestic flights in the UK, Michael O’Leary claims that if Flybe is allowed to fail other airlines would “readily” take on many of the routes it currently operates with zero competition. “There are some domestic routes which would not be taken up, but these are already well served by train, bus and motorway alternatives,” O’Leary says in his letter Chancellor of the Exchequer, Sajid Javid.
The BALPA pilots union, however, see’s the situation very differently claiming Flybe “plays an incredibly important role connecting the regions and nations of the UK and onwards to Europe.”
“If Flybe didn’t exist, it would have to be invented,” BALPA General Secretary Brian Strutton warned, saying that the likes of Northern Ireland, the Channel Islands and the Isle of Man would all “suffer hugely” if Flybe went bankrupt.
The UK government has not yet responded to Ryanair or IAG and no further details about the rescue package have yet been released.
