The Speaker
Wednesday, 17 July 2024 – 20:33

Why did the government save Flybe?

The government’s decision to rescue troubled regional airline Flybe has been fraught with criticism from across the political divide.

It was announced last week that the airline was on the brink of collapse, which would have left many regional routes without a carrier – leading the government to step in and save the company – offering loans and a stay on their Air Passenger Duty (APD) liability. However, the extent of the deal struck with the airline by Chancellor Sajid Javid, Business Secretary Angela Leadsom and Transport Secretary Grant Shapps has been criticised as both economically reckless and a misuse of public funds.

The bulk of criticism has been from other airlines, with Ryanair’s Michael O’Leary and British Airways’ Willie Walsh demanding answers over the government’s support for Flybe – with other airlines expressing an interest in picking up some of the routes Flybe currently operates.

Flybe, owned by a number of other ventures, including Virgin Atlantic, managed to secure loans from the government, despite claiming their willingness and ability to borrow on commercial terms – which would have meant private loans for the company, instead of relying on the public purse.

The standard explanation thus far has been that the company were unable to secure commercial loans, with their latest difficulties the most recent in a long history of struggling to maintain a viable business, acting as a carrier in small regional flight routes.

The amount cited is reportedly less than £10 million, a strangely small amount for the government to loan a private corporation – again suggesting that the reason for the involvement was Flybe’s inability to secure commercial loans with the current function of the business.

Criticism of the move has been rife from conservatives and free marketeers, who suggested that if such an intervention was needed, the company should have been allowed to fail, with rescue being branded as a misuse of public funds.

The government’s supposed renewed One Nation Conservative direction makes their decision even more confusing, particularly given their refusal to rescue Thomas Cook, less than 6 months ago.

The move has also been criticised from the left, with Grace Blakeley – author of Stolen: How to Save the World from Financialisation – suggesting that it is another example of corporate welfare, with public funds being used to prop up irresponsible businesses.

The crux of their opposition has again come from the use of public funds, rather than private loans being used to save the company. Labour leadership hopefuls, including shadow business secretary Rebecca Long-Bailey, have been quick to criticise the government’s decision.

However, much of this criticism could be perhaps argued to be unfair, particularly that from the left; the government’s move would appear far more holistic and long term than simply to loan money to a doomed company, as may have been the case with Thomas Cook.

The failure of Flybe would likely spell the end for several regional airports, as one of the only carriers for many short distances and little-used routes. Although this does not make the most viable business model – with the environmental element of inefficient routes impossible to ignore – the failure of Flybe would have been catastrophic for some of the most remote parts of the UK.

Although the decision can be seen as hypocritical and easy to condemn, the government’s decision has largely saved the less profitable routes that would have left many remote parts of the UK largely unconnected to much of the mainland.

One of the major elements of the ‘Johnson revolution’ has been an emphasis on uniting every part of the United Kingdom, with recent proposals floated for moving the House of Lords to the north of England and Conservative Campaign Headquarters to the midlands.

Although the market would have likely stepped in to replace the profitable Flybe routes, with Ryanair likely to be a major beneficiary, many of the marginal routes may have ceased. While the largely unprecedented move from the government is clearly an example of corporate welfare, some inefficient markets are arguably too vital to let collapse – perhaps the government’s decision to rescue Flybe has been too harshly criticised by some.

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