LONDON – UK regional carrier Flybe has been in talks over the weekend to prevent a collapse of the airline following declining finances.
The airline currently handles over half of Britain’s domestic flights, which would be a detrimental blow to the national economy should the carrier go under.
It is understood that EY, an accountancy firm, has been placed on standby to handle a potential administration of the airline.
If the administration does occur, then up to 2,000 jobs could be at risk. The British Government has been briefed through its Department for Transport (DfT) body, and could be on standby to offer assistance.
The airline operates around 75 aircraft currently, offering services to over 80 airports across the UK and Europe only.
Significant bases in the UK for the carrier include Manchester, Birmingham and Southampton alike.
Flybe issued a statement via social media last night stating that services are continuing as normal.
“Flybe continues to provide great service and connectivity for our customers while ensuring they can continue to travel as planned. We don’t comment on rumour or speculation.”
What’s going on with Connect?
Connect Airways was the consortium, through Cyrus Capital, Virgin Atlantic and Stobart Group in which the airline was purchased in March last year.
This purchase had left shareholders angry at the fact that the airline was sold for so little, being the £2.2 million figure, which would have left their equity close to worthless.
This buyout included the installation of a new CEO, being Mark Anderson.
Connect had promised to invest around £100 million into the turnaround plan of the carrier, on the promises that the airline is renamed to Virgin Connect later this year.
According to insider knowledge, the proposed financing of the carrier “had become more onerous, potentially leaving Flybe on the brink of collapse”, according to UK media outlet Sky News.
The sale process itself began in 2018 due to currency volatility, rising fuel costs and BREXIT-related uncertainty in the UK.
Can the airline be saved?
Airways got exclusive commentary from Professor Loizos Heracleous, an aviation expert at the Warwick Business School who emphasised that attracting new finance wouldn’t be easy.
“Reports that Flybe is seeking a fresh rescue deal come in the wake of numerous European airline failures, including Air Berlin, Monarch, Flybmi and holiday firm Thomas Cook.”
“Attracting new finance will be no easy task. The aviation industry is an unattractive industry in terms of performance and returns on investment at the best of times.”
“It is saddled with high-cost assets, namely planes, and key costs that fluctuate uncontrollably, mainly fuel, which accounts for around a third of total airline costs. On top of that, they face high regulation, often aggressive unions, low barriers to entry that increase competition, and high bargaining power of buyers.”
“Increases in industry profitability after 2011 were aided by lower fuel prices, but with fuel prices on an upward trend since 2016, the performance of some airlines (particularly if they pay for fuel in sterling) has taken a hit. Political uncertainty does not help.”
Heracleous gave the overall effect to this in his commentary also.
“There will undoubtedly be more bankruptcies. For example, in 2017 we saw 79 new airlines enter the market, while 25 went bankrupt. The failure rate was even higher in Europe, where 29 airlines were started and 14 went bankrupt. In the medium, to long term, the European aviation industry may move towards higher levels of consolidation where the weakest players get weeded out or taken over.”
“Airline bankruptcies inevitably lead to frustration for stranded passengers and unfulfilled plans. Some relief can be gained by obtaining a refund and making alternative travel plans if tickets are purchased by credit card, if the trip is ATOL protected, or if there is relevant travel insurance. European law also provides for refunds for cancelled flights unless the airline can argue that extraordinary circumstances were the cause.”
This would ultimately suggest that Flybe will require some sort of a miracle to remain on its feet going into 2020.
While it is unclear whether the UK Government would bail the airline out, it could potentially be in its interest to do so.
Many new MPs that were elected into the House of Commons in December 2019 are in constituencies where the public rely on Flybe for the business links to the likes of London and other areas in the country.
Job losses in those constituencies could have political consequences, especially if they are not saved.
This would have a ripple effect on UK connectivity, giving the likes of BA CityFlyer significant prevalence and the ability to set fares as it pleases.
The government did not bail out Thomas Cook when it went into administration last year, resulting in thousands of job losses as well as a further economic detriment to the tourist industry as well.
In this case, it might be in the interest of the government to bail out the carrier in order to keep that level of business flowing domestically.
The forecast does not look very good for Flybe, but if it can secure any level of funding to stay afloat, then it could potentially survive the year while it establishes where to make cuts.
As for the Connect consortium, this could either be a failure of the business plan or something more than meets the eye. In due time, we will find out.