Government considering UK APD cut to save loss-making airline Flybe
Date added: 14 January, 2020
Flybe is one of the main airlines that fly domestic routes in the UK – 38% of them. Currently air passengers pay £26 APD on a return domestic flight (and £13 on a return flight to a European airport). Flybe has been struggling for years, as many of its routes are not profitable. It said in October that it recognised, with growing awareness of the higher CO2 emissions from a flight that using the train or coach, (and “flight shame”) that some of the domestic routes should be scrapped. Now Flybe cannot pay its APD bill to the government – about £100 million over three years. So the government, which talked up the importance of regional connectivity before the election, is considering removing APD from all domestic flights. That would be entirely the opposite of what is needed, to tackle UK carbon emissions, and those from UK aviation in particular. Aviation is already subsidised by not paying VAT. The loss to the Treasury from cutting domestic APD would have to be made up by taxation from other sources. It is not as if all domestic flights are vital to the economy. Most are leisure passengers, making trips to visit places or people, friends or family. . Tweet
See also
Any plans by UK government to remove APD on domestic flights would be unhelpful on CO2 emissions
January 14, 2020
Responding to the news that Boris Johnson’s Tory government is considering dropping all APD on domestic flights (just cutting it for Flybe would not be legal, for competition reasons) groups that understand about the need for cuts in carbon emissions reacted with dismay (to put it politely). Doug Parr, chief scientist at Greenpeace, commented: “This is a poorly thought out policy that should be immediately grounded. The Government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel – flying – cheaper the next. Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport. The aviation sector has got away for years with increasing its carbon footprint. The last thing we need is another incentive for them to pollute more.” Caroline Lucas commented on Twitter: “Addressing #Flybe problems by reducing #APD on all domestic flights is utterly inconsistent with any serious commitment to tackle #ClimateCrisis. Aviation already subsidised – no tax on fuel. Domestic flights need to be reduced, not made cheaper.” Jenny Bates at Friends of the Earth said on Twitter: “APD cut on domestic flights would be “unacceptable & reckless” we at @friends_earth say-we must cut aviation emissions not encourage them.”
Flybe: UK air passenger duty cut considered to save airline
14.1.2020 (BBC)
Prime Minister Boris Johnson has told the BBC there is “no doubt” about the importance of regional airline Flybe.
The carrier’s network includes more than half of UK domestic flights outside London.
The government is to consider cutting air passenger duty on domestic flights as part of a plan to save the airline from collapse.
However, environmental groups said such a move would be “reckless” given the need to prevent climate change.
Why is Flybe so important?
The prime minister told the BBC that it was “not for government” to step in and save companies that run into trouble.
But he added: “We see the importance of Flybe in delivering connectivity across the whole of the United Kingdom.”
The airline carries about eight million passengers a year from airports including Birmingham, Manchester, Southampton, Belfast City, Cardiff and Aberdeen, to the UK and Europe.
Tim Jeans, chairman of Cornwall Airport, said Flybe was “very important not just to our airport but to regions, to nations and to island communities across the UK”.
“They provide lifeline services to destinations across the rest of the UK that simply are not replicated by either other airlines or convenient and affordable train services.”
Nick Lake, 39, who works for a property development company, said he uses Flybe at least once a week to fly between Manchester and Edinburgh and “would be devastated if they went under”.
What is the government considering?
The UK government is considering a cut to air passenger duty (APD) to help the Exeter-based company.
The change would allow Flybe to defer its tax bill, design a rescue plan, and secure more than 2,000 jobs.
Improving connectivity outside of London was a key Conservative manifesto pledge and at least one of Flybe’s routes, between Newquay and London, is subsidised by the government.
Sky News reported that the possible deal over air passenger duty could see Flybe defer a payment of more than £100m for three years.
By applying the move to the whole industry, the government would avoid breaching EU state aid rules.
It’s also thought any Flybe turnaround plan would be financed by a consortium led by Sir Richard Branson’s Virgin Atlantic, which rescued the airline a year ago.
Virgin Atlantic, Southend Airport-owner Stobart Group and hedge fund Cyrus Capital Partners paid £2.8m for the airline and agreed to invest £100m in the loss-making business.
Flybe has refused to comment on talks over a rescue.
Flybe is a long-time critic of APD, which it says disproportionately burdens its domestic customers because they have to pay it each time they take off from a UK airport. [APD is just £13 for any adult on any short-haul return trip in Europe – under 2,000 miles. It is charged on passengers leaving a UK airport. So it is charged twice – £26 – on domestic flights, as both involve leaving a UK airport. AW comment]
Changes to air passenger duty could reduce the billions of pounds the charge generates for the government, which is expected to reach £3.7bn this financial year, according to Office for Budget Responsibility.
What do climate change activists think?
Doug Parr, chief scientist at environmental campaign group Greenpeace, said cutting air passenger duty would be “a shocking decision”.
He said:
“This is a poorly thought out policy that should be immediately grounded. The Government cannot claim to be a global leader on tackling the climate emergency one day, then making the most carbon-intensive kind of travel – flying – cheaper the next.
“Cutting the cost of domestic flights while allowing train fares to rise is the exact opposite of what we need if we’re to cut climate-wrecking emissions from transport. The aviation sector has got away for years with increasing its carbon footprint. The last thing we need is another incentive for them to pollute more.”
Jenny Bates, a campaigner for the Friends of the Earth charity, told the BBC any cut to air passenger duty would be “reckless”.
Ms Bates said: “These short UK trips are exactly the ones we need to avoid in the drive to cut aviation climate emissions needed to prevent climate breakdown.
“Instead the government could invest more in our rail system, helping make such trips more affordable.”
Is there another solution?
Former transport secretary and Labour peer Lord Adonis said that if the tax was cut, it was likely that general taxes would have to be raised to make up for the lost revenue.
He added: “There may be a case for subsidising more routes. If they are vitally necessary there is a case for subsidising them… but not to give Virgin and BA a free lunch at the expense of the general tax payer.”
BBC business editor Simon Jack said a cut to air passenger duty could create what Boris Johnson has previously described as a “moral hazard” – a dangerous precedent that would lead struggling companies to believe they could rely on the government to help them if they got into financial difficulties.
Government working ‘very hard’ to save Flybe, says PM as ministers ‘prepare to discuss rescue package’
13.1.2020 (ITV)
The government is “working very hard” on Flybe’s rescue, the prime minister has said ahead of reported ministerial meetings which will evaluate what can be done to save the struggling airline.
Boris Johnson declared it was not for government “to step in and save companies that simply run into trouble” but admitted the company has an integral role in “delivering connectivity across the whole United Kingdom”.
It is reported Chancellor Sajid Javid, Business Secretary Andrea Leadsom and Transport Secretary Grant Shapps will meet to discuss whether a £100 million tax payment can be deferred until 2023, according to Sky News.
It was reported that the deal would be conditional on Flybe’s three shareholders pumping tens of millions of pounds into the loss-making carrier.
“We’re working very hard to do what we can, but obviously people will understand that there are limits, commercially, to what a government can do to rescue any particular firm,” Mr Johnson told the BBC.
“But what we will do is ensure that we have the regional connectivity that this country needs.”
Several readers have told me that these cuts had been announced months ago. In truth these changes are being made in addition to the cuts announced last spring.
Now comes news from the new CEO of Flybe (soon to be rebranded Virgin Connect) that the future of certain domestic routes is in doubt.
Devonlive.com reports that CEO Mark Anderson says that Flybe could stop flying between (domestic) airports where the journey could be made easily by train or car.
Interviewed on Thursday by PA news agency the CEO said:
“We need to be responsible. Maybe there are some routes in the future, as I look at the future of Virgin Connect and how we’re connecting people to the world, that we will potentially not fly.”
“We will potentially say ‘Actually this makes more sense by train or this makes more sense by road.’ And maybe in the future we’ll get behind that as well.”
Routes under threat, because of good train links, might include Birmingham to Edinburgh and Glasgow and Exeter to London City.
Any changes made to the latter route will not go down well with Exeter’s weekly commuters to London as we reported earlier this week.
Flybe has already said it will cease flights between Manchester and Glasgow towards the end of this month, while it’s unlikely the former Cardiff-London City service will ever return … even though much requested by Welsh customers.
In other news Flybe and Scotland’s Loganair have said they will enter into a cooperation agreement on Anglo-Scottish routes.
Travellers will be able to buy through tickets (for the entire journey) and through-check their luggage.
Buying a through ticket means travellers will be looked after should the connection be missed. They will also have the ability to through-check luggage, and will make APD savings as the duty is payable once, not twice.
