Flybe, the Biggest British Regional Airline on the Brink of Collapse

As per reports from several industry observers, Flybe, the biggest regional airline of the United Kingdom is on the verge of a financial collapse. The airline which flies more than 8 million passengers a year, connecting 81 airports, flying 210 routes, across 15 countries between the United Kingdom and the rest of Europe had been taken over by new management in 2019 which had vowed to keep the company afloat. The airline, whose origin dates back to 1979, has seen several name changes and ownership changes over the years. The news of the possible collapse of this airline comes only months after the collapse of another major British Airline company, Thomas Cook Airlines, which met the same fate along with its parent company, Thomas Cook. The company currently employs nearly 2,000 people and is owned by a consortium known as Connect Airways comprising of Virgin Atlantic, Stobart Group and Cyrus Capital, a United States-based Hedge fund company.

Airline industries world over have been on a rough patch lately on account of several global and regional factors. The advent of the low-cost, no- frill airlines is the biggest threat that the industry is facing in recent times, with most of the older and established airlines been struggling to meet the cost structure of the low-cost airline industry. The Pre-Brexit headwinds across Europe and the US-China trade war situation have been having significant impact on the world economic outlook. While the Pre-Brexit jitters caused the economy of the United Kingdom to slow down in the last couple of years, the US-Chine trade war situation has pushed up crude oil prices with an ensuing impact on aviation fuel prices. The combined effect of all the above is that the full-service airlines have been constantly losing market share in the previous couple of years. The effect; a number of airlines have shut shop in the United Kingdom in the last two years namely; Monarch Airlines in 2017, Flybmi in 2019 and Thomas cook Airlines in 2019.

Flybe has been in financial trouble for some time now. Last year the company was bought over by a consortium made up of Virgin Atlantic, Stobart Group and Cyrus Capital the United States-based Hedge fund company. The consortium which was named as Connect Airways had bought out the assets of the company paying just £2.8 million but promised to bring in additional funds to take the company out of its financial woes. However, as the new year dons, it seems that the financial troubles of the company have gone out of control of the consortium. It has been reported that the company is in discussions with the Department for Transport (DfT) and the Department for Business, Energy and Industrial Strategy (BEIS) of the United Kingdom for a rescue deal. However, there are now questions of whether the government should stick its neck out in order to rescue this airline given its poor financial performance over the years.

The fliers, who have booked their tickets with the airline, face an uncertain future. The standard procedure followed when an airline fails is that all flights of the airline will be cancelled, and fliers will not be transferred to another airline. Regarding the rules on refunds, it depends on how the passenger had originally made his bookings. If the passenger has made his booking directly through the airline, then the chances of refund are bleak. However, if the bookings have been made through a travel agent the bookings may be insured against airline collapse in which case a refund can be expected. The scheme under which these insured bookings are made is popularly known as the ATOL Scheme and it protects passengers against flights, accommodation and even car hire should a particular vendor go bankrupt. The rules, however, also state that the provisions only apply when package deals are booked and flight-only bookings, when tickets are not received immediately.

Last year, the company had been in thick of M&A activity. The Connect Airways consortium, while taking over Flybe had promised to lend £20 million initially to help the company continue with its operations. This was to be augmented further by £80 million to help the company strengthen its finances further. The consortium had also planned to rename the airline as Virgin Connect, with its network to be aligned to append it with Virgin Atlantic’s services from Heathrow and Manchester airports to increase connectivity and efficiency for both the airlines. The plan could have effectively expanded Flybe’s operations which would have eventually led to the company’s emergence out of its financial woes. However, it seems that the financing plan committed by the consortium has been a little delayed to come by, which has been the primary reason for the current state of predicament for the company.

There have been several factors that are responsible for the present status of this company. First and the foremost is the state of the economy of the United Kingdom. Flybe operated the largest number of flights which connected regional destinations in Europe and its collapse will create a big vacuum in air connectivity in the United Kingdom. The consortium is in a better position to pump more funds to keep the airline running. The original plan to rebrand the company as Virgin Connect and align it with Virgin Atlantic’s services has the potential to create significant value for both parties. The current problem of cash crunch, if funded by the government could save the company, unlike the other failed airlines in the recent past. The British economy is picking up and with it the number of fliers will also increase in the airline industry. Other than that, the number of failed airlines in the recent past in the United Kingdom has also left a large vacuum that needs to be filled. The likelihood, however, of a rescue deal working out with the government agencies is bleak given the recent experiences with Thomas Cook Airlines.