The government has announced its response to Flybe. The only key point is this:
As part this work and ahead of the March Budget, the Treasury will also be reviewing Air Passenger Duty to ensure regional connectivity is strengthened while meeting the UK's climate change commitments to meet net zero by 2050.
These measures featured in discussions today with Europe's largest regional airline, Flybe, which plays an important role in the UK's connectivity by flying regional routes that other providers do not operate.
There is no indication as to what this means. There is literally no detail. But there is this comment made:
- At Budget 2018, the government announced that for the eighth year in a row short-haul rates will not rise, staying at £13 for economy and £26 for business/first, keeping down the costs of travelling for 80% of passengers.
- UK passenger growth is strong: passenger numbers at UK airports have increased by 28% since 2013. This strength extends across the whole of the UK, with regional airports handling approximately 39% of all passengers in 2018.
In the light of a commitment to becoming net-zero carbon - repeated in the press release - the celebration of growing passenger numbers is depressing. We are moving in the wrong direction.
The reality is that as a result of this announcement we know little more, except that supposedly Flybe is seeking to reduce an Air Passenger Duty charge and is seeking maybe £100 million of support, some at least of which will come be deferring Air Passenger Duty, which will have arisen at £13 a time, as explained by the government, here. That is APD on a staggering 7.7 million flights, and it is important to remember that not all flights carry APD e.g. children are usually exempt.
To put this in context I looked at the last full set of accounts for Flybe I can get, from here. In those accounts Flybe says:
That is not a healthy company, but let's just look at the revenue side to help understand the £100 million of APD. This is the income statement:
I put these two together and £675.8 million of passenger revenue at £53.79 a seat implies 12.6 million flights (near enough). Except Flybe says they only have about 8.5 million flights a year. There is, then, other revenue per passenger per seat to take into account and flights only cost about £36 each.
If the lower figure of flights is true and APD is £13 per flight and maybe 12.5% are children then APD per annum would be £97 million a year. I strongly suspect this is where the figure of £100 million comes from. It is the annual APD bill.
And what the rules make very clear that this is due in monthly instalments. So the idea that there is £100 million owing at present is very unlikely to be true. If it is HMRC has been deeply negligent. The last accounts do not imply such a liability to be owing.
But what we are left with are more questions than answers.
Firstly, where does this figure of £100 million come from? Is it what I have suggested?
Second, why has the government not pursued for tax owing, if it is due? Why ahs favour been given, if it has been?
Third, what is being planned for this APD? The obvious answer for Flybe is to halve it: it is losing £5.90 0per passenger per flight. Halving APD to £6.50 and letting it pocket the difference would keep it afloat then. But why should all other airlines benefit as well?
Fourth, why at this time are we looking at introducing what would, in effect, be carbon subsidies and letting this airline (and others) pocket it, which is clearly what is planned?
And fifth, if there is to be a loan, what type of security is being demanded with what rights to intervene in the governance of the company? This is a private company with powerful backers. The question as to why it is being bailed out when most of what it does is not in the slightest bit socially necessary (which means I am acknowledging that a few routes are for now) has to be answered, and only accountability can deliver that explanation.
I am unsurprised that IAG has made a complaint on competition grounds: ministers have a lot of work to do to justify this intervention when there would seem to me to be much better uses for £100 million than subsidising the air travel habits of the wealthier middle and upper classes.
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Is Flybe a UK business? It seems to be fragmented to many entities of some sort in Guernsey, Luxembourg, Ireland, Cayman Islands and Delaware just as it did when the Walker family ran it. Does this make any difference to its tax status and EU and Boris involvement and of course Andrea Leasdom (Leadsom?) has some useful connections off-shore too. Maybe I have been reading too many of your posts ….
It has a UK parent
Surely the solution for regional connectivity is to subsidise flights were there is a genuine social need rather than an across the board tax cut
Yes….
And EU law permits that
And we will have to comply with it on 1.1.21 I suspect
Jonathan Orchard wrote ‘the solution for regional connectivity is to subsidise flights where there is a genuine social need’.
First, if the UK is to deliver on its (weak) Paris commitments, to ‘subsidise flights’ is counter productive (see recommendation 3 below). On 14 December 2019, Professor Kevin Anderson tweeted (https://tyndall.ac.uk/people/kevin-anderson) (https://twitter.com/KevinClimate/status/1205849194101137408) “The scale of action required if the UK is to deliver on its commitments enshrined in the Paris agreement (All starting January 2020)
1. A moratorium on all new fossil fuel.
2. An immediate phase out of old fossil fuel production to be complete by 2030 – 35 with detailed policies of a just transition for those working in these industries.
3. A rapidly rising frequent flyer levy to immediately slash how often the ‘frequent flyers’ fly.
4. No airport expansion.
5. No expansion of the road network.
6. A rapid move to a car-free cities and towns (including electric vehicles).
7. A minimum initial standard on all new cars with a maximum of 100 grams of CO2 per kilometre, tightening at 8 to 10% each year.
8. A tight emission standard on all power stations (a fleet level for all suppliers of 250 grams of CO2 per kilowatt hour reducing at 8 to 10% each year.
9. A minimum and very stringent efficiency standard for all rented properties and homes.
10. All new houses and buildings to be passive-house standard and include on-site renewables.
11. A fair carbon tax such as ‘fee and dividend’ or personal carbon allowance.
12. Major subsidies for electric bikes (perhaps paid for by the Frequent Flying Levy).
13. Stop all fossil fuel advertising.
14. Devolve responsibilities and powers to regions and cities to help deliver culturally appropriate policies.”
Second, Jonathan refers to ‘genuine social need’.
Every person on the planet should be entitled to the fulfilment of BASIC HUMAN NEEDS: food, clean water, clothing, shelter, basic health care, security. It’s sensible to add: some education, some energy — mostly travel at bicycle speeds, communication, electricity – see Solar Aid http://solar-aid.org which provides access to solar lights in tropical Africa where darkness falls at around 6pm; children can study in the evenings (education is a prerequisite for reducing population growth).
Surely it would not be all that difficult to ensure that all basic needs were met for the vast majority of the 2 billion humans who survive on less than 2 dollars a day — including the homeless in the UK. One of the cruellest realities of global warming is that the people who have done the least to contribute to it tend to be among the first and worst hit.
Meanwhile we have an advertising-driven, perpetual-growth-dependent economy that multiplies ‘wants’. We now know of some ‘ruinous wants’: holiday flying, tourism, buying the latest fashions, meat every day, travel to business and academic conferences, international sports and entertainment, more than one home, unnecessarily large homes and cars, flood lights, hot air balloons, space travel, motor racing, most military arsenals?, nuclear weapons? … (add your own thoughts).
At the National Assembly in Paris, Greta Thunberg told French Deputies ‘Basically, nothing is happening.’ If you don’t believe her, look at http://www.CO2.Earth which shows that worldwide emissions continue to rise inexorably. The concentration of CO2 is already at ruinous levels yet every day and in every country, burning fossil fuels makes the situation worse.
It is time to begin the process of the ELIMINATING the most obviously RUINOUS WANTS — and to do so on an urgent time schedule.
I agree….
Joe Burlington says:
“It is time to begin the process of the ELIMINATING the most obviously RUINOUS WANTS — and to do so on an urgent time schedule.”
Now this raises an old chestnut that often appears in economics texts and by that I mean the concept of “low hanging fruit”. So in the case climate action what constitutes the lowing hanging fruit – is it the least necessary and most ruinous wants such as “the air travel habits of the wealthier middle and upper classes” which also happen to be by far the most carbon intensive? Or is it the electricity generation and land vehicle transport that make up the vast bulk of carbon emissions?
Given that there are existing technologies for renewable electricity generation and electric vehicles that are either cheaper or becoming cheaper than their fossil fuel alternatives that would appear to be the low hanging fruit. It is immediately do-able and arguably the most urgent because it eliminates most of the overall problem.
There aren’t readily existing alternatives to the fuel burning technologies in aviation and shipping but then again commercial aviation only contributes 5% of the world’s climate warming problem, although it attracts more attention because of its per-passenger intensity.
https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions
https://www.eesi.org/papers/view/fact-sheet-the-growth-in-greenhouse-gas-emissions-from-commercial-aviation
https://www.bbc.com/news/science-environment-49349566
One area that I would like to raise for the sake of conversation, because it is an easier political target than passenger air travel and because it is an undoubted source of unnecessary carbon emissions is stupid trade – the trans-oceanic import of goods that could just easily be produced locally at similar prices or goods that are only cheaper because they are produced elsewhere under unethical and unsustainable conditions that wouldn’t be legal in the importers’ country. Just putting that out there.
Anyhow, having said all that I can’t see any possible justification for subsidising this obviously non-viable airline or its non-viable journeys at non-viable prices. An effective carbon subsidy can’t be justified on principle or in fairness to others and it certainly won’t save a company that is this deeply troubled. Jonathan Orchard’s point about a “solution for regional connectivity .. to subsidise flights were there is a genuine social need rather than an across the board” is interesting in its own right but that wouldn’t save Flybe either.
All in all it looks like a situation where the govt. is going to waste revenue now on an airline that is going to end up going bust at some point anyway. There must some particular marginal seat or specific electoral issues in this (either real or imagined) otherwise it makes no sense at all.
https://www.wired.co.uk/article/government-flybe-rescue
I do not see why air travel – which is a decided luxury – cannot be tackled at the same time as other issues
It does seem like one of the low hanging fruit
“Air travel — which is a decided luxury” for the tourists yes, but for the industry that serves them that tourism is a livelihood. The main or only livelihood available in some towns and locations. And for some entire economies (disadvantaged economies included) it is the primary export and principle source of foreign currency.
Now if you want to shut most of that down in exchange for a (less than) 5% reduction in global greenhouse gases then you are liable to get a level of backlash, resistance and resentment that would be more trouble than it is worth to say the least.
Then again, given the forecast growth in commercial aviation there is definitely a case for introducing some restrictions, for sure. As David Smith (in this forum) has indicated it looks like clean technology will catch up with aviation. In the meantime there is much that we readily do about the other 95% of emissions without imposing a severe or cruel level of economic disruption.
Air travel is the case where I think tax has a considerable role to play
Perhaps it is time to introduce Air Fuel Duty – chargeable on all supplies made in UK, and on and duty free fuel already in aircraft tanks on departure.
Won’t happen of course, but might be better than APD – even Mr O’Leary might like it as he runs an efficient operation.
Not allowed under international agreements
I did wonder, but as usual too idle to check…
“….. the Treasury will also be reviewing Air Passenger Duty to ensure regional connectivity is strengthened while meeting the UK’s climate change commitments to meet net zero by 2050. […]”
“There is no indication as to what this means.”
Seems fairly transparent to me. Treasury is looking at reducing tax as a subsidy to keep the company profitable and flights cheap. It is exaggerating the element of public service flights to justify this and as usual kicking the emissions can down the road to 2050 which in government-speak is beyond the foreseeable future.
What else could it mean ?
I couldn’t possibly comment ……
Another point to mention (although it does not change anything you have written) is that these accounts are nearly two years old. Since then the company has been taken over by the current owners and moved its accounting year end to July so who knows what the financial position is now. Hopefully the government does if it is giving a loan plus an effective loan of not collecting the APD on time.
Also, some of the news reports refer to the APD as a cost to Flybe. Surely they are just a collection agent.
Entirely accepted …. I was using the best data I could get
Technically, APD it is not a “cost” to them. You are right. If anything it represents a customer disincentive and a competitive disadvantage with regard to substitution (when competing with alternative forms of transport or consumption). It makes them that bit less affordable.
It’s all such nonsense. We need to reduce flying full stop. There is no reason why you cannot run electric high speed rail to Cornwall. London Newquay is 20 miles less than London Newcastle and 90 miles less than Paris Brest. <3 hours tops and straight into central London.
But every train west of Exeter runs at little more than 30mph…
The old LSWR route to Plymouth needs to be restored as one way forward
Restoring the old LSWR route via Okehampton would also come in useful for when the GWR route through Dawlish is no longer viable because of rising sea levels.
Agreed
Charles Adams says:
“It’s all such nonsense. We need to reduce flying full stop. ”
I disagree, Charles. We need to make it clean, as I’ve said somewhere else. Air travel does have some very substantial benefits not least that unlike HS2 it doesn’t have to cut a swathe through the landscape destroying habitat. You only need an airport at either end.
To stop flying altogether would be a major infringement of the ability to move about the planet and a major retrograde step I think. And you can’t run railways across the sea. And that restriction of movement is going to be a very hard sell. What damages the Green movement more than anything else (imo) is the impression that greens want to go back to living in caves (I exaggerate but you know what I mean). At least there is movement in this attitude as commentators, with increasing frequency, point out that we are looking to new technology to solve the problems old technology has created.
We need to make the development of affordable clean flying an urgent priority. That will take government pressure and government funding. – carrot and stick. And yes, we need to smarten up our act on other forms of transport, both individual and mass transport not least figuring out how better to get passengers to and from the mass transport hubs. There are huge prizes foreseeable for getting to these solutions first. They will be highly exportable (except to America where they will stubbornly refuse to accept that aren’t already the greatest at everything).
Most flying has to stop
Unless it can become zero carbon
Since we do not know how to do zero carbon flying this has to be the case
The choice between flying and holidaying abroad and life on earth is simply a no brainer
Richard, please take a look at the 9 seater Alice from the Israeli startup Eviation I spotted at the Paris Airshow.
https://www.eviation.co
Great range and specs. Should have Federal Aviation Administration (FAA) certification by late 2021.
With battery technology improving year on year (weight is key) a 40 seater “air bus” is not far away if the will is there to adopt it.
Maybe you can check their accounts too! One to watch.
Andy,
You are dead right on this right on this one. Efficiency and clean technology are not only more powerful and effective than abstinence and non-consumption, they are hell of a lot easier to sell to the public. The idea that going green is all about prohibition and cutting things back is not only wrong and retrograde it is a political graveyard.
I kind of tried to make this point with my reference to Aviation representing just 5% of the greenhouse gas problem and the other 95% (well, most of it) being more readily solvable but you made the salient point clearer.
BTW in case you missed it, David Smith (above) made an interesting point as well with this one:
“Richard, please take a look at the 9 seater Alice from the Israeli startup Eviation I spotted at the Paris Airshow……..”
https://www.eviation.co
David Smith,
That looks fabulous David. That’s the beginning. That is the future.
To fly from Exeter to Edinburgh costs £61 including the APD @ £13, which has admittedly not been passed on, is direct and takes less than two hours. To go by train costs £67 for an advance booking to get the cheapest price, is without APD, requires a train change and takes over seven and a half hours. Although I have never flown in my life and have no intention of doing so, the attractions of flying, where a reliable service enables you to arrive on time and without interruption against the plethora of prices for the same journey and the many reports of the trials and tribulations regarding our railway system, are compelling.
You ignore the other subsidies the flight gets e.g. on fuel
I trust you do not think that my comments are in support of flying over the more environmentally case for travelling by train. The tragedy of todays world is that we have a system that basis personal satisfaction on consumption, i.e with the desire to go to Edinburgh on a holiday, as an example, which does not, through the price paid, reflect the environmental damage.
The policy should be about encouraging better environmental alternatives.
Taxation may well provide the ‘nudge’ but the reality is that people will see that as a ‘tax grab’.
As a child of the fifties, where an orange was seen as a Christmas present, those who suspect climate extinction have to articulate an alternative lifestyle.
Note 20 to the 2017/18 accounts says passenger taxes are included in “other payables” with some other items, and the total is £32.5m. I suspect that reflects one month’s worth of accrued by unpaid APD at the year end (as APD is payable monthly in arrears).
Page 14 says the load factor was 75%, so that might explain some of the difference between 12 million seat capacity versus 8 million passengers carried.
But I agree, £100m must be around their annual APD bill, but should be paid monthly. I would expect HMRC to be on the phone sharpish if an expected monthly payment of around £10m did not show up. Particularly as this is cash already collected from customers for flights already flown.
The shareholders just need to put in some more working capital.
If Flybe is permitted to defer payment of a year’s worth of APD, why can’t other airlines?
I ran out of time earlier …thanks
So at least a quarter outstanding – that’s stress all right
And ye, they need to cough up the cash or Flybe needs to go
At a more macro level, the lack of public information about the financial position Flybe is actually in and about the nature of the deal that has been agreed (and the probability that it amounts to state aid) speaks volumes about this government and the people running it.
They think they can do what they want, without regard to conventional norms of behaviour or applicable laws. And that no one will care, so they don’t need to tell us.
Almost the first thing this new government does, even before “getting Brexit done” [sic] at the end of this month [bong] is to trample all over state aid rules. I wonder what the EU will think about that when it comes to negotiating a new trade deal.
wonder what happened to that 175.4 million owed to group undertakings that was deferred by more than 12 months
You might wonder…
Bizarrely, after all the reports of a £100m issue, Flybe has issued a statement today saying this is just an arrangement to give them more time to pay £10m, which is probably December’s APD due later this month. Perhaps there is a post-Christmas cash crunch that they hope will resolve itself in the spring.
I’m disappointed there is no detailed explanation (ministerial statement, press release, whatever) setting out precisely what has been agreed.
And I struggle to see why a regular monthly payment (of tax that Flybe has already collected from customers) should become such an existential threat. The equivalent in another sector would be a retailer driven to the wall by the need to pay over the PAYE on its employees’ wages, or VAT on their salves. The tax is not the problem, it is the poor performance of the business. Except of course that Flybe has been campaigning for years against APD, and keeps making losses.
I wonder if this is just another of the distractions…
I suspect there has been some massive backtracking
£30 million is going in from parent co’s
Maybe that is payment for the freed Heathrow slot – they go for a lot
And remember the old company had £90m of grants on its balance sheet already
There will be more to this…
One of the aims of HS2 is to remove all the flights from Birmingham and Manchester to London. The high speed will get people out of their cars and will still be better than electric cars in reducing CO2. Reducing the speed will save very little cost and will reduce the attraction to reduce air and road use and so CO2.
HS2 is the only current project which will make a measurable reduction in transport CO2 emission. It is essential to provide extra capacity for getting people out of their cars and HGV transported goods off the roads. The existing west coast railway is at maximum capacity.
Ben Oldfield says:
“One of the aims of HS2 is to remove all the flights from Birmingham and Manchester to London.”
Manchester ? The train arriving on platform three in Manchester has been delayed and may arrive sometime after 2050. And that doesn’t mean ten to nine pm.
HS2 is a vanity project. And in so far as it is billed as being good for the ‘Northern Powerhouse’ it will draw wealth and investment towards the Capital not away from it. But apparently you really can fool some of the people all of the time.
Andy,
You make an intersting point about HS2 drawing “wealth and investment towards the Capital not away from it”. It does have the potential to make an already over-centralised country even more centralised.