Business

Flybe collapse averted after APD pledge

As talks continue to rescue troubled Flybe, the focus has switched to the reform or removal of air passenger duty
Sam Blewett, Press Association, and Gary McDonald

FLYBE'S collapse has been averted after the British government told the airline it would review air passenger duty (APD) and shareholders agreed to additional investment.

The Treasury announced on Tuesday evening that the loss-making carrier would continue operating after the review of the tax featured in rescue talks.

Environmental groups have warned that cutting APD would hamper efforts to combat the climate crisis while airlines claim that it restricts connectivity and passenger growth.

Flybe’s shareholders agreed to a cash injection – understood to be in the region of tens of millions of pounds – to keep Europe’s largest regional carrier in business “alongside government initiatives”.

The airline would not comment when asked if the Treasury had separately agreed to the deferral of a portion of the airline’s outstanding tax bill over a period of months.

The emergency agreement seeks to prevent Flybe becoming the second UK carrier to fail in four months after Thomas Cook went bust in September.

Chancellor Sajid Javid said: “I welcome Flybe’s confirmation that they will continue to operate as normal, safeguarding jobs in UK and ensuring flights continue to serve communities across the whole of the UK.

“The reviews we are announcing today will help level up our economy. They will ensure that regional connections not only continue but flourish in the years to come – so that every nation and region can fulfil its potential.”

The Treasury said the APD review ahead of the March Budget would consider the UK’s climate commitments to meet net zero greenhouse gas emissions by 2050.

Business Secretary Andrea Leadsom said she was “delighted that we have managed to reach an agreement with Flybe shareholders to keep the company in operation”.

Flybe chief executive Mark Anderson welcomed the deal as a “positive outcome for the UK” which “will allow us to focus on delivering for our customers and planning for the future”.

Transport Secretary Grant Shapps said his department will “undertake an urgent review into how we can level up the country by strengthening regional connectivity”.

Mr Shapps said APD worked “slightly oddly”, adding “it costs twice as much to fly within the country as it does to fly to for example France and back”.

He added the taxpayer had not paid any money into the firm.

Flybe’s shareholders Connect Airways, a consortium including Virgin Atlantic, Stobart Group and Cyrus Capital Partners, will put in more funding as part of the agreement.

Its chairman Lucien Farrell said: “We are very encouraged with recent developments, especially the government’s recognition of the importance of Flybe to communities and businesses across the UK, and the desire to strengthen regional connectivity.

“As a result, the shareholder consortium has committed to keep Flybe flying with additional funding alongside government initiatives.”

Mr Javid held talks with colleagues to decide whether to let Flybe defer its estimated £106 million APD bill for three years or whether the tax should be cut for all domestic flights, according to multiple reports.

Passengers on domestic flights pay £26 in APD for a return trip, with higher rates for longer flights and premium cabins. The tax is expected to be worth £3.7 billion to the Treasury in 2019/20.

Before the announcement, Greenpeace UK policy director Dr Doug Parr said any cuts to APD was a “poorly thought-out policy that should be immediately grounded”. Friends of the Earth campaigner Jenny Bates said it would be “completely unacceptable and even reckless” to cut APD.

The British Airline Pilots’ Association welcomed the move for securing the jobs of 2,400 Flybe staff.

Business groups in the north welcomed a light being shone on the negative impact the duty has had on the airline and added that the tax is putting Northern Ireland, in particular, at a distinct disadvantage with other European destinations.

Hospitality Ulster chief executive Colin Neill said APD harms the hospitality sector as visitors and tourists decide to go elsewhere.

“It deters visitors from coming here and hinders the growth of a sector that benefits the whole economy,” he said.

Belfast International Airport managing director Graham Keddie said: “It’s clear APD is a competitive disadvantage to Northern Ireland, the tourism and hospitality sectors, and the wider economy. Maintaining APD makes no sense, a fact recognised by the Republic of Ireland, which abolished its airport tax a number of years ago and which has reaped the benefits.”

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