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UK airline Flybe dodges Thomas Cooke’s fate – for now

The financially-troubled travel firm was bailout out by the UK government, with an additional funds boost expected from its shareholders.

Flybe has been in operation since 1979, and employs around 2,000 employees Mounting losses led to the company being bought out last year by a consortium of three travel firms, primarily the US-owned Virgin Atlantic The government bailout has received some backlash from rivals, politicians, and other organizations

It was only a few months ago that British travel firm Thomas Cooke, the world’s oldest travel company, shut down and let go of thousands of its employees.

Now, another UK travel company, Flybe, almost had a brush with the same fate. 

Flybe makes a flyby past collapse

Flybe, Europe’s biggest regional airline, is now reported to be on the brink of collapse

“Flybe… was locked in survival talks on Sunday night less than a year after being bailed out by a Virgin Atlantic-led consortium,” an exclusive report by Sky News revealed. 

“Sky News can exclusively reveal that Flybe, which handles over half of Britain’s domestic flights outside London, has been trying to secure additional financing amid mounting losses.”

As for its financial challenges, the Financial Times (FT) explains that “the latest troubles come after a difficult decade for Flybe, which has struggled to be profitable since it was floated in 2010. It has undergone several restructurings by successive management teams but has yet to prove it has a sustainably profitable niche in flying the less busy routes that are not largely serviced by airlines such as Ryanair and easyJet.”

With Flybe teetering on the edge, it puts at risk a company that has been in operation for 41 years, the jobs of 2,000 employees, and the lifeline of multiple smaller airports across the UK. With 2 out of 5 regional flights in the UK being handled by Flybe, the risks are significant to the travel sector of the Kingdom, as Flybe operates lesser-traveled routes not operated by other airlines. Flybe carries 8 million passengers a year between 71 airports across the UK and Europe, with over 189 routes across 12 countries. 

Read: Thomas Cook: The human cost of the collapse of a 178-year old travel company

The government, and shareholders, come to the rescue
To Flybe’s delight (and the chagrin of competitors and others), the government and shareholders have come to its rescue, brokering a deal to salvage the company. 

“The deal combines a number of measures, including a short-term deferral of some of Flybe’s air passenger duty — which costs the airline about £106m ($138 million) a year — a potential government loan and a further cash injection (estimated £20m) from the airline’s owners, according to people briefed on the talks,” FT reported. “The government is also considering cutting the cost of APD (Air Passenger Duty, valued at £26/$34) on domestic flights across the industry, a change that is likely to be announced in the government’s Budget in March.”

Last year, shareholders Virgin Atlantic, Stobart Air and Cyrus Capital “promised to invest £100 million ($130 million) in the struggling firm which was set to be rebranded as Virgin Connect,” as per CNBC, after being purchased by them for a mere $2.8 million last year after facing similar financial troubles at the time.

With a government bailout in the books, some rivals, such as British Airways, and other bodies are unhappy with the decision.

Read: Golden opportunity: Thomas Cook India nabs rights to the TC brand for meager $1.9 million post collapse

“Misuse of public funds”  
Willie Walsh, the chief executive of the owner of British Airways, fired back at the UK government for their decision to bail out the troubled private airline. 

“In a letter to Transport Secretary Grant Shapps, a copy of which has been seen by the BBC, Willie Walsh questioned why the taxpayer is picking up the tab for the airline’s mismanagement,” reported the British media group.

Walsh reminded that “one of Flybe’s biggest shareholders, Virgin Atlantic, is part owned by the US’s Delta, one of the world’s largest and most profitable airlines. Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline. This is a blatant misuse of public funds.”

Similarly, environment advocacy groups questioned the bailout, particularly the cut to the APD tax. 

Green Party MP Caroline Lucas said: “Addressing Flybe problems by reducing APD on all domestic flights is utterly inconsistent with any serious commitment to tackle the Climate Crisis. Domestic flights need to be reduced, not made cheaper.”

However, as the BBC explains, the government has said the review of the tax will be consistent with its zero-carbon targets.

Similarly, the boss of the Airport Operators Association, Karen Dee, welcomed the deal, saying in a statement: “Flybe plays a critical and unique role in the UK aviation system, supporting the development of the regions, providing essential connectivity to businesses and stimulating the growth in trade.”

UK Cabinet member Business Secretary Andrea Leasoom also defended the decision, calling Flybe a “viable business.”

She also said Flybe’s situation was different to that faced by travel firm Thomas Cook, which collapsed last year. “The difference… between Flybe and Thomas Cook was that in the case of Thomas Cook it had huge amounts of debt, and any taxpayer’s money would simply be throwing good money after bad.”