Ryanair alleges that Flybe rescue deal is unfair

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The rescue deal offered by the British Government to the troubled Airline Flybe has been drawing sharp reactions from many quarters of the industry. Ryanair, the principal rival to Flybe in a statement today has demanded that her Majesty’s treasury offer them the same treatment as offered to Flybe while terming the move of the government as unfair. Its CEO Michael O’Leary stated that the bailout of Flybe’s ‘billionaire owners’ is a breach of competition and United Kingdom’s state aid laws. Earlier also CEO of IAG, Willie Walsh, the owners of British Airlines and Iberia had termed the move of the government as a blatant misuse of public funds.

Flybe is the biggest regional airline of United Kingdom. It flies 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. Earlier also the company had run into financial trouble, when it was rescued by a consortium known as Connect Airways comprising of Virgin Atlantic, Stobart Group and Cyrus Capital, the United States-based Hedge fund company. The consortium, which bought all its assets of the company for £2.8 million, had promised to pump in millions more to rescue the troubled airlines. However, with the passage of time, the promised funds were a little slow to come by, leading to the present situation of the company. The company, while not publicly acknowledging its financial problems, had initiated talks with the British Department for Business, Energy and Industrial Strategy (BEIS) and the Department for Transport (DfT) for a rescue deal.

Past few years have been very difficult for the airline industry worldwide. Among several other factors, the advent of the low cost, no- frill airlines is the biggest threat that the industry is facing in recent times with most of the old airlines struggling to meet the cost structure of the low-cost airline industry. Apart from that, the unfolding of the United States and China trade war situation and the simmering Brexit situation in continental Europe have also had a telling effect on the world economy. Most recently the break-out of hostilities between the United States and Iran has pushed up the prices of crude oil significantly and as a consequence, the prices of Aviation fuel. The industry, because of the effect of the above and a host of other factors, has seen a number of airlines shut shop in the past few years namely, Thomas cook airlines in 2019, Monarch Airlines in 2017 and Flybmi in 2019; other than this, a number of other regional and larger airline companies are also deeply in the red.

Ryanair Holdings PLC (LON:RYA) is a Dublin, the United Kingdom domiciled low-cost airline and is Europe’s largest budget airline. The airline operates low fare, no-frill passenger airline services to destinations between Ireland, the United Kingdom, Continental Europe and the Middle East. The company has been one of the pioneers of the low-cost business model in Europe, achieving rapid success in a small period of time. The company operates over 300 Boeing 737-800 aircraft flying 225 destinations across 40 countries. The airline is one of the principal competitors to traditional full-service airlines in Europe and has tried aggressively to steal away market share from the former by adopting competitive price strategies. In order to optimize most of its low-cost business model, the company also markets convenience solutions and travel protection through its own Website. Other than travel, the company offers boarding and lodging services and a host of other services, and it also has its own passenger handling and ticketing administration at Dublin Airport.

It has been revealed now that Flybe owes Her Majesty’s exchequer more than £100 million in back taxes. The bailout money promised by Connect Airways consortium, should it have been released, would have been easily consumed paying off the taxes and nothing would have been left to operate the airline. The deal was thus necessary for the fresh infusion of funds to take effect and bring the company out of the red. The time period that the government has given the company (by postponing payment of £106 million in air passenger duty by 3 years) is to turn it around so that it may be in a position to pay its dues. Looking at the whole affair from a different angle, the British exchequer did not have much of a choice; either it would let the company collapse and lose a significant amount of taxes owed not all or allow the company some leverage to earn its way back to profitability so that it may pay its taxes in full. Given the situation thus, there is not much merit in the demands made by Rivals Ryanair Plc and IAG in receiving the same treatment from her Majesty's government.

The CEO of Ryanair Plc, Michael O’Leary says that the Flybe business model is unsustainable and the company will be back in the red when the bailout package is consummated. The assertions made by him are partially right. Flybe's business model is unsustainable and the continuation of the same will only lead to the same results as before. The new owners of the company, however, have a different strategy. They want to append the Flybe network to Virgin Atlantic's existing operations in Europe to extract more value from both the airlines. The consortium had decided to rename the airline as Virgin Connect and integrate it with its network in order to complement it with Virgin Atlantic’s services from Heathrow and Manchester airports, so to increase connectivity which would eventually end up in the expansion of its revenue base. The biggest hurdle, it seems now, in the implementation of this strategy is the £100 million in back taxes owed. Now that this is being taken care of, the consortium will be able to implement its strategy. The year 2020 is going to be a time of immense possibilities for businesses in the United Kingdom. The breaking away of the country from the European Union will bring about transformative changes to the British economy. Companies like Flybe will be in a better position to take advantage of the new environment if they transform themselves and adapt to this new set of circumstances.