Wednesday evening marked the end for embattled British regional airline Flybe. The carrier entered administration (a UK version of bankruptcy protection) and ceased operations. All future flights are canceled, leaving passengers, airports and employees across the United Kingdom to wonder what the future holds.
The carrier’s end comes as the global economy, and particularly travel demand, buckles under the weight of the COVID-19 coronavirus outbreak. The International Air Transport Association (IATA) now estimates global losses in the range of $63-113 billion dollars, more than doubling its prior estimates of a $28 billion impact, made just two weeks ago. But COVID-19 is not what killed Flybe.
Maybe the health scare finally pushed the carrier over the edge. Airlines are cash flow businesses, with tickets purchased for future travels funding today’s operations. And undoubtedly the future sales suffered in recent weeks. But Flybe was already on the brink. It was seeking a £100 million loan guarantee from the UK government or suspension of its obligation to pay the Airline Passenger Duty (APD) taxes, giving it more liquidity for short-term operations. That ask came on the heels of a buyout from new investors, including a pair of airlines, that presumably reviewed the books before making the purchase.
Other carriers (justifiably) objected to a tax holiday for just one airline, leaving the government in a bind. Rather than face the promised lawsuits the UK government chose to stand aside and let the underlying economics of Flybe’s operation take their course.
In a statement a government spokesperson indicated that reviews of regional connectivity and the APD will continue, with a theory of delivering recommendations “to ensure that the whole of the UK has the connections in place that people rely on.” But in the interim many of those passengers in the smaller cities and towns outside of London have roughly nothing available for air travel. The next few months will be brutal for the local economies. Some bus and rail options exist, but those services are generally far less convenient and often more expensive for travelers.
Thousands of staff displaced
For passengers the impact will hopefully be relatively short-lived. Other airlines and the rail lines are stepping up to get travelers and crew home.
But for those Flybe employees, once home there are few solid prospects for continuing in their chosen profession quickly. Other recent airline collapses, including Monarch and Thomas Cook, brought a number of other qualified candidates into the market. And when those airlines collapsed the overall industry still held a positive outlook for growth. Today that is very much not the case, at least near-term.
Airlines are trimming frequencies, offering unpaid leave, and implementing hiring freezes while awaiting a bounce back from the COVID-19 demand drop. No one knows just how long the current scenario will last, and the longer it is drawn out, the worse things get for Flybe staff looking to find a new airline job.
Airports hit hard
For the UK’s regional airports the loss of Flybe could be a much harder challenge to overcome.
At a number of airports across the country Flybe’s operations represent more than half the total flights. In a couple cases the carrier is essentially the only operator. Those airports now face the difficult prospect of rebuilding the operations with other airlines or dramatically cutting staff and services as they no longer have passengers passing through.
And the associated cities will undoubtedly feel the pinch as both tourism and business travel evaporates with the flight cancellations. Hotels, restaurants, car hire and other businesses all benefit symbiotically from airline operations. Those merchants will all suffer.
What could happen? What should happen?
Flybe will almost certainly not be replaced by a single new airline, even as some of the markets see new service launch. Lacking a coherent plan from the government ready to deploy today the smallest of the airports are likely to suffer disproportionally. Loganair has already stepped in to bring a handful of routes online this month. Aberdeen will see connectivity restored to Manchester, Belfast City, Birmingham and Jersey in the coming weeks and months. By moving quickly it can capture some of the more profitable routes.
And more announcements are certain to come in the days ahead. But it remains unlikely that the full route network will recover. And without government support there is a very good chance many of the routes are simply not viable as domestic airline destinations. While the current administration talked big about supporting the regions during its push for Brexit, actions to deliver on those promise appear limited thus far.
Do the smaller airports need direct flights among themselves or connections via a global hub? The former aids domestic business while the latter obviously delivers a much broader set of connections. But with the London hub airports full and showing no signs of expansion, delivering that level of connectivity for the regions is not a viable consideration. Manchester is growing as a hub but offers only a tiny fraction of the options available via London.
The carrier wanted to expand its codeshare operations with Delta Air Lines, tied to the ownership stake held by Virgin Atlantic. The application went in only last week and likely would have been approved this week; now it will be withdrawn. And it is unlikely that the codeshare would have fed enough passengers to truly reverse the carrier’s finances, though every little bit helps.
Can the government act quickly enough?
In the coming weeks the UK government will have to make good on its promise to deliver a coherent plan that delivers sustainable connectivity to the Regions. That is a mighty task, particularly against the backdrop of the economic hit Brexit is expected to deliver. But without the coordinated backing from on high a recovery for these smaller markets is much, much further away.
Echoing this desire for a proper government intervention, Tim Alderslade, Chief Executive of Airlines UK, the industry body representing UK-registered airlines, offers up a scathing statement on the state of the industry:
Flybe’s problems were known to many and the sector as a whole is going through an incredibly tough period with the Coronavirus hitting bookings and dampening demand, and this is being felt across the board. That said, this is now the fourth UK airline to go out of business in two years. The Government is right to say aviation is a commercial proposition and the market should win out – but they are not using the policy levers at their disposal to help the sector. APD is the prime example of a disproportionate and penalising policy that is actively holding us back.
Leaving the EU presents Ministers with opportunities to intervene – for example getting rid of the double domestic APD anomaly, reforming EC261 or using PSOs in a more imaginative way – and these should be explored asap, with next week’s Budget presenting the perfect opportunity.
Brexit does remove many of the regulatory hurdles towards providing direct aide or supporting the regional air operations. But the government has, thus far, delivered far more talk about support than action on that front.