Flybe collapse: What went wrong and what happens next?

Europe’s biggest regional airline has collapsed. Simon Calder answers the key questions about what went wrong with the Flybe business

Simon Calder
Travel Correspondent
Thursday 05 March 2020 01:34 GMT
Flybe collapses into administration

How did Flybe start – and how significant was it in the airline world?

Flybe began life in 1979 as Jersey European Airways. It became British European in 2000, and changed its name again to Flybe two years later.

The airline was based in Exeter and served 119 routes in the UK and Europe.

Flybe operated UK domestic flights that do not begin or end in London, with frequent links between Scottish and English airports, and many routes to and from George Best Belfast City airport.

At a dozen UK airports, including Aberdeen, Belfast City, Birmingham, Glasgow, Manchester and Southampton, Flybe was the largest airline in terms of the number of flights.

It also served many near-European cities, including Amsterdam, Dusseldorf and Paris, and operated charter flights to ski and sun destinations.

Flybe carried around nine million passengers a year – about the same as easyJet carries in a month – but it provided essential links to the UK regions. For many business people and leisure travellers, the airline was regarded as essential.

What went wrong?

Flybe had a successful flotation in 2010, but since then the share price has been in freefall – with strategic errors including ordering Brazilian jet aircraft that have proved an expensive encumbrance, and taking on Loganair in a fares war to the Scottish islands that cost both carriers many millions.

Problems intensified after the EU referendum in 2016 and the slump in sterling. A large slab of Flybe’s costs were in dollars, while the vast majority of its earnings were in sterling. So the post-referendum slump in the value of the pound hit the airline hard.

In addition, Flybe was operating in the most competitive aviation market in the world. Whenever a Flybe route became successful, bigger airlines moved in with larger aircraft and swept up the market. For example from Edinburgh, Glasgow and Inverness to Bristol, easyJet now has a monopoly.

Recently easyJet announced plans to start competing with Flybe from Birmingham to both Edinburgh and Glasgow.

Many of its intra-Great Britain routes were in competition with road and rail.

Flybe long complained that Air Passenger Duty (APD) of £26 on a round-trip made its flights uncompetitive. Before its failure, the airline had hoped to persuade the government to halve APD on domestic flights.

Wasn’t Flybe rescued in 2019?

Everyone thought so. After Flybe put itself up for sale late in 2018, warning that it was fast running out of cash, a consortium comprising Virgin Atlantic, Stobart Group and a US hedge fund, Cyrus Capital, stepped in, in March 2019. It was called Connect Airways.

The partners pumped in a rumoured £100m. In exchange the consortium bought the right to rebrand the airline as Virgin Connect and set about rationalising the route network – in other words, cancelling loss-making links.

But the scale of Flybe’s problems were bigger than the consortium feared. The expected summer recovery never happened, and as the airline went into its final winter losses increased.

According to a leaked message to staff from Mr Anderson, all but £27m of the rescue fund “was gone before we even really started … we were in worse shape than even the shareholders thought we were”.

… and in 2020?

In January, amid rumours of an imminent collapse, the government stepped in and appeared to bail out the airline. The then-chancellor, Sajid Javid, the then-business secretary Andrea Leadsom and the current transport secretary Grant Shapps agreed to provide a tax “holiday” for many millions of pounds in APD that passengers had already paid Flybe.

Mr Javid talked of “safeguarding jobs in UK and ensuring flights continue to serve communities across the whole of the UK”. Ms Leadsom said: “I am delighted that we have managed to reach an agreement with Flybe shareholders to keep the company in operation, ensuring that regions across the country can continue to be connected.” And Mr Shapps added: “Europe’s largest regional airline is able to continue providing their valued services, connecting communities across the UK.”

In addition, they promised to review APD on domestic flights. But The Independent understands that Flybe’s management was told two weeks ago that the flight tax would not be reduced in next Wednesday’s budget.

At around the same time, bookings slumped as concern grew over the spread of the coronavirus. With business and leisure travellers wary of buying flights, Flybe was haemorrhaging cash.

The Independent understands that on Wednesday afternoon, a fuel supplier in Scotland refused to extend further credit to Flybe. When airports learned of the move, they began to impound aircraft, triggering the shutdown.

Are other airlines vulnerable?

Some – but not the biggest airlines serving the UK: British Airways, easyJet and Ryanair. Financially, they are rock-solid, with plenty of cash to see them through months of difficult trading.

Jet2 and Tui, which operate flights as well as package holidays, are also strong.

But some foreign carriers are likely to fail. The closest comparable downturn in modern times happened in 2001, after the terrorist attacks of 9/11.

As new bookings, and cash, dried up, long-established airlines including Swissair, Ansett of Australia and Sabena of Belgium failed.

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