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Published on Thursday, January 16, 2020

Flybe bailout opens a can of worms

The Government's decision to step in and save Flybe was a bold but risky move, says Ian Bell, head of travel and tourism for business advisory service group RSM. Here he explains why.

"The financial difficulties facing Flybe have set the new Government an early test. In responding to the crisis, Boris Johnson has had the unenviable task of balancing the competing priorities of honouring election promises to promote regional connectivity, sticking to climate change commitments, staying on the right side of EU state aid rules and protecting the tax take.

While the details of the support package are not yet clear, the suggested forbearance on Air Passenger Duty (APD) payments and the promise of a review to decrease domestic APD are both unprecedented.

While the move will be a great relief to the 2,400 Flybe employees, it has already provoked howls of protest from competitors and environmental campaigners alike. It also raises questions about previous governments' decisions not to support other struggling businesses and increases the likelihood that other distressed companies could go cap in hand to the government in the future.

There is also a risk that delaying collection of APD is simply a case of kicking the can down the road to keep the flights in the air. What happens if and when the cash runs out again?

In its review of APD, the Government will be very keen to avoid criticism that it is not taking its carbon reduction commitments seriously. It will also be keen not to reduce tax receipts. One outcome could be a rejigging of the APD rate bands so that longer haul flights incur a higher charge to offset the money lost through a reduction to APD on domestic routes. This is a risk that the travel sector will need to monitor closely.

There could also be unintended consequences from a reduction in domestic APD - notably an increase in demand for regional flights as prices become more competitive than equivalent train fares. This wouldn't be a good look for a Government keen to burnish its green credentials."

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