As I See It: Terry Murden
Boris Johnson is learning that even rescuing a business from collapse is no guarantee of receiving a pat on the back.
His government helped engineer a package of support that will enable the regional airline Flybe to continue flying, guaranteeing a lifeline for some smaller populated areas of Britain, and fulfilling a pledge by the Prime Minister to improve connectivity across the country.
Even so, it has proved a bumpy ride for ministers who have faced a volley of criticism, notably from British Airways whose boss Willie Walsh accused the government of a misuse of public funds, and the Green lobby who say supporting airlines flies in the face of carbon commitments.
Questions will be asked about the initial rescue package by Virgin Atlantic, Stobart Group and Cyrus Capital Partners which clearly misjudged Flybe’s liabilities, and more are being asked about why they alone cannot support this second bail out.
The airline’s troubles focus around an unpaid tax bill of £106 million, collected from passengers in air passenger duty and which is yet to be handed to the Treasury. Flybe has asked for it to be deferred and the government has agreed to a long term review of the tax amid complaints that it is punitive and subject to anomalies that, in some cases, make flying abroad cheaper than domestic flights.
APD raises about £3.8 billion a year – the highest in Europe – and was introduced to offset the environmental damage caused by our addiction to flying.
The government faces a damned-if-they-do and damned-if-they-don’t dilemma. The aviation industry obviously wants APD cut, and cheered when the SNP government said it would use its devolved power to scrap it entirely. However, the SNP reversed that plan as the climate emergency rose up the agenda and the public mood turned against polluting-plane travel.
Should the Westminster government go ahead with cuts to APD, the SNP will have some further thinking to do about whether to follow suit or put Scottish air passengers at a financial disadvantage.
One of the more sensible policy proposals from Labour deserves greater consideration: a frequent flyer levy that would replace the across the board APD with a tax paid by those who travel by air most often.
The issue has pushed the ‘train or plane’ debate higher up the agenda. Some question whether a country the size of Britain needs regional airlines when train travel makes more sense, financially and environmentally. However, a similar dilemma is developing over HS2, the high speed rail line promoted as an alternative to road travel, but also now mired in controversy over cost and damage to natural habitat.
Where a case is proven for air links – for instance to the islands – the route to profitability lies to a great extent in their connections to international destinations.
This means being linked to hub airports, such as Heathrow. They make more money from long haul services and only six regional airports connect to Heathrow.
This shortage of slots is one of the arguments for a third runway at Heathrow. With more slots, airlines like Flybe could market their services to the rest of the world and become more financially sustainable. But that, of course, means more air travel.