British airline FlyBe has been posting heavy losses for months because of rising costs, an industry price war and uncertainty over Brexit. (Credit: AFP)
Britain's Flybe airline and the UK government have struck a deal to keep the carrier operating, Andrea Leadsom, the business secretary, announced on Tuesday.
"Delighted that we have reached agreement with Flybe shareholders to keep the company operating, ensuring that UK regions remain connected," Leadsom stated on Twitter.
"This will be welcome news for Flybe's staff, customers and creditors and we will continue the hard work to ensure a sustainable future."
The firm's shareholders, including Virgin Atlantic and Stobart Group, have reportedly agreed to inject money into the struggling company. The details of the deal are not yet clear.
What is Flybe?
Flybe is a British short-haul carrier, but one with a big footprint.
In the UK, it operates nearly half of all domestic flights.
And it is also a major player in Europe, with routes to several European cities and is the largest regional carrier on the continent.
It is based in Exeter, which is in the South West of England.
Flybe is struggling to survive at a time of year when fewer people fly. (Credit: AP)
Why has been it in trouble?
It has been posting heavy losses for months because of a combination of factors: rising costs, an industry price war and uncertainty over Brexit.
Now, it is struggling to survive at the time of year when fewer people fly. As other airlines offer discounts to get passengers on board, Flybe is desperately trying to get a cash injection until it hits the summer season, which is considered the peak time of year for the industry and when more people are likely to fly and pay higher prices.
UK Prime Minister Boris Johnson's government could bail out Flybe as it tries to push the credentials of cities outside London in a post-Brexit world. (Credit: AP)
Why was the UK government being asked to help the airline?
Flybe operates routes that other airlines can't or won't. For passengers wanting to fly to cities in the UK that aren't in or near London, Flybe is often the obvious choice: it serves the likes of Southampton, Manchester, Birmingham and Aberdeen. For a government that is increasingly trying to push the credentials of cities outside London, maintaining direct routes to these cities from other places in the UK and across Europe (more likely to be used by business travelers) is essential, particularly in a post-Brexit world.
And that's before we get on to job losses: around 2,000 workers are employed by Flybe.
The British travel operator Thomas Cook collapsed (Credit: AP)
What are the options to save the company?
The main one being looked at is cutting passenger duty. That's the tax that is paid per person, per flight. It would mean that Flybe could stave off a tax bill of around $130 million for the next few years. But the concern is that Flybe is already on its second life: last January, the airline was bailed out by a consortium led by Virgin Atlantic and Stobart Group at a cost of nearly $3 million. The UK government has already seen one big travel operator (Thomas Cook) go under in the past few months. Can it justify throwing money at an airline that could go bust anyway and take taxpayer funds with it?
Even though the UK is set to leave the EU in a matter of weeks, it will still be subject to EU competition laws until at least the end of 2020. (Credit: AFP)
What is the role of EU rules?
The EU has strict competition laws. And even though the UK is set to leave the EU in a matter of weeks when Brexit kicks in, the UK will still be subject to these until at least the end of 2020 during the transition period. This means the government has to think very carefully about what financial assistance it gives, because it could be seen to be giving Flybe an advantage over other airlines. The other option would be that it cuts passenger duty for all airlines, but that will lead to a big hole in finances.