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Flybe Deal with U.K. Government Criticized by Competitors
The U.K. government’s decision this week to defer a reported £100m ($130m) in Air Passenger Duty (APD) payments from Europe’s largest regional carrier Flybe has been met with celebration and criticism. The deal has given the airline, which is owned by a consortium including Virgin Atlantic’s parent company, the opportunity to continue trading and thrown a lifeline to Flybe’s employees.
Brian Strutton, general secretary of the British Airline Pilots Association union said: “This is good news for 2,400 Flybe staff whose jobs are secured and regional communities who would have lost their air connectivity without Flybe.”
The connectivity that Flybe provides to the U.K.’s regional communities has been perceived as the main reason that Boris Johnson’s new government has stepped in whereas leisure-oriented airlines such as Monarch and most recently Thomas Cook have been allowed to fail.
Under public service obligations (PSO) within European Union legislation, governments can designate some regional air services connections ‘which are vital for the economic and social development of the region’ as protected. In the U.K. the PSO fund is used to protect ‘existing UK air services to London where there is a risk that regional connectivity may be lost.’
The government has also announced a review of the controversial APD which levies a tax on all passengers departing U.K. airports. The current legislation on APD does not differentiate between domestic flights and flights within the European Union so it is understood that until the Brexit transition period has concluded at the end of this year the U.K. government cannot make a tax exemption for flights within the U.K.
However, there are currently several exemptions from APD including those passengers who leave on flights from airports in the Scottish Highlands and Islands region.
Though the news of government intervention to save Flybe has been met positively in some areas, the plan is being perceived as a ‘bailout’ in other quarters and declared contradictory to the U.K. government’s environmental policy seeking to reduce carbon emissions. Irish carrier Ryanair has written to the U.K. chancellor declaring that any attempt to amend the application of APD to assist U.K. carriers would ‘constitute unlawful aid.’
The chief executive of International Airlines Group (IAG), the parent company of British Airways, Willie Walsh has written to the European Commission citing the deal as a breach of state aid rules. In a letter to the transport secretary decrying the deal and calling it ‘a misuse of public funds,’ Mr. Walsh referenced BA’s long-haul rival Virgin Atlantic and Virgin’s 49 percent shareholder Delta Air Lines saying: “Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline.”
Both Mr. Walsh and Ryanair chief executive Michael O’Leary are staunch critics of the U.K.’s APD.
Environmental groups including Greenpeace and Friends of the Earth condemned the deal citing a conflict with the U.K. government’s own commitments to reduce carbon emissions. A Friends of the Earth campaigner said: “It would be completely unacceptable and even reckless if the government cut air passenger duty on domestic flights. These short U.K. trips are exactly the ones we need to avoid in the drive to cut aviation climate emissions to help prevent climate breakdown. As recently as October Flybe chief executive Mark Anderson addressed environmental concerns about regional air operations. At an aviation industry event he cited the possibility of withdrawing from certain routes in the future by saying: “We will potentially say ‘Actually this makes more sense by train or this makes more sense by road.'”
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