Flybe Finally Collapses Amidst The Global Coronavirus Scare  

At 2.00 am on 5 March 2019, passengers of Flybe, who were supposed to take flights with the airline, were informed via text message that they need not report at the respective airports as their flights have been cancelled. Then came the announcement at 3.00 am that the airline has collapsed after all efforts to keep it afloat had failed. The airline, though, had not been in good health for the past couple of years with its financial health deteriorating to critical levels on more than one occasion. In the recent past, there have been more than one attempt to rescue the company, once by a consortium led by Virgin Atlantic which had pumped in £100 million and on the second occasion by the Her Majesty’s Treasury when it gave the company a waiver to defer payment of taxes owed to the exchequer worth millions of pounds. However, it seems the coronavirus challenge proved too heavy to counter for the company, and it fell into administration after the new British Chancellor of the Exchequer Rishi Sunak reversed the stand taken by his predecessor Sajid Javid and declined support to the airline, sensing the current state of the aviation industry.

Flybe was the largest regional airline in the United Kingdom to be offering services to cities in the country which were less serviced or were not at all serviced by other airline companies. The airline, whose origins date back to 1979, has seen several name changes and ownership changes over the years. It was last taken over last by new management in 2019, which had vowed to keep the company afloat. It flew more than 8 million passengers a year, connecting 81 airports, flying 210 routes, across 15 countries between the United Kingdom and the rest of Europe. However, its financial troubles kept on mounting, first because of the intense price war amongst low-cost airlines and then from the slowdown ensuing out of Brexit and finally on account of the coronavirus scare which has shaved off a huge chunk of revenue from the global aviation industry since its outbreak. Last year when connect airways consortium took control of Flybe, it had promised to pump in £20 million initially to help the company continue with its operations, which was to be augmented further by £80 million to help the company strengthen its position further. The consortium had also planned to rename the airline as Virgin Connect, with its network to be integrated with Virgin Atlantic’s services from Heathrow and Manchester airports to increase connectivity and efficiency for both. The plan could have effectively expanded Flybe’s operations which would have eventually led to the company’s coming out of its financial woes. However, it seems that the financing plan committed by the consortium has been a little slow to come by, which was the reason why the company had to approach the British Government for a tax bailout in January this year. The British exchequer faced with the choice to either let the company collapse and lose a significant amount of the taxes owed or give it some more time to turn around and pay up the back taxes, chose the latter. But now it seems the exchequer will have to satisfy itself with whatever is obtainable from the administration process.

At the time when the exchequer granted the waiver to Flybe, it had come under a lot of criticism from competitor airlines, namely IAG, Ryanair and EasyJet. IAG, the owners of British Airways, had filed a complaint with the European Union’s Directorate-General for Competition over the issue, Willie Walsh, the chief executive of IAG, while commenting on the subject had stated that the British taxpayers were being fooled to foot the bill for the consequences of Flybe’s mismanagement. The Chief executive of EasyJet, Johan Lundgren, had pointed out the issue that public funds should not be used to bail out individual companies, especially when they are backed by sizeable international airline companies like Virgin Atlantic. Ryanair, the main competitor of Flybe, in a statement issued after the government waiver had demanded that Her Majesty’s Treasury should also offer similar treatment to other airlines as had been provided to Flybe while stating the exchequer’s actions to be unfair. The company’s chief executive, Michael O’Leary, said that the rescue of the airline’s ‘billionaire owners’ is a disregard of state aid laws and also undermines regulations related to competition. The British Government, however, stated that it was fully compliant with state aid rules and there has been no state aid for Flybe and that any assistance that has been given was strictly granted on commercial terms.

The global airline industry had been going through a difficult period, even before the coronavirus outbreak happened. Several factors had been responsible for dwindling passenger numbers and rising operating costs in the industry, including the pre-Brexit headwinds across Europe and the US-China trade war situation and the threat of a world economic slowdown. While the pre-Brexit turmoil had slowed down the United Kingdom’s economy in the last couple of years, the US-Chine trade war situation had pushed up the crude oil prices having a commensurate effect on aviation fuel prices as well. The combined effect of all the above is that the full-service airlines have been continuously losing market share in the past couple of years. The result is that a number of airlines have shut shop in the United Kingdom in the last two years, namely, Monarch Airlines in 2017, Flybmi in 2019 and Thomas Cook airlines in 2019.

The outbreak of the coronavirus epidemic and its reported spread has made people nervous everywhere. Most industries are under pressure from declining revenues with growing fears over the spread of the virus. Most revenue declines have been seen in the travel and leisure businesses with all other major sectors having been impacted to a lesser extent. Airline stocks are the most impacted, suffering heavy losses since the outbreak. Earlier, this sector was predicted to achieve a global growth of over 4 per cent but is now likely to remain flat in 2020. Tour operators too have been hit with a lot of cancellations and fewer new bookings. Most of them have started coming up with warnings of severe financial impact not only for the first quarter but for the whole year as well in case the spread is not contained and reaches other unaffected regions of the globe. Ryanair has demanded that slot rules across major airports be temporarily suspended on account of the massive cancellations. Under the rules, one pair of taking off and landing slots that are allotted to airlines must be operated at least eighty per cent of the time during a year, or it is at risk of being taken away from the airline the next year. These slots, which are purchased by airlines from major airports, cost millions of pounds and would lead to massive losses if not fully utilised.

For the passengers, the situation is that of chaos. The standard procedure followed when an airline fails is that all flights of the airline will be cancelled, and fliers will not be transferred to other airlines. Regarding the rules on refunds, it depends on how the passenger had made his bookings. If the booking has been made directly through the airline, then the refunds may not come through. However, if reservations were made through travel agents and the bookings were insured against airline collapse, then refunds can be expected. The CEO of the company, Mark Anderson, speaking on the eve of the announcement related to the failure, stated that the airline had been unable to overcome significant funding challenges which were the main reason for the collapse, followed by the coronavirus outbreak which had a substantial effect on the demand in the past few weeks. A spokesperson for the Government while speaking on the issue stated that they have requested bus and train operators to accept Flybe tickets and have requested other airline operators to offer discounted fares to the affected passengers so that their journeys may continue as smoothly as possible. The spokesperson also stated that they are working in unison with the industry to remove interruptions on the routes serviced by Flybe, including asking other airlines to initiate services on routes not covered by them till now. The staff of the airline also remains in a tough situation. The government spokesperson also spoke about the affected staff and stated that the Government-run jobcentre and rapid response services are providing immediate support to these people in order to find alternative employment as soon as possible.