As the government prepares for a possible sharp reaction in Air Passenger Duty (APD) for domestic flights, it appears that Flybe’s new owners could be about to benefit from a carefully orchestrated PR campaign.
Ministers from the Department for Transport (DfT) and the Department for Business, Energy and Industrial Strategy will be meeting later today to discuss a reduction in APD to 1995 levels: just £5 each way, a reduction of £8 on the present level.
On Sunday night a leaked story said that the Virgin Atlantic-led consortium which took over Flybe was in “last-ditch” talks with possible lenders and the government over the future of the ailing regional airline.
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By Monday evening further leaks indicated that Flybe had asked to withhold tens of millions of pounds in APD collected from passengers but not yet passed on to the Treasury, until the weak winter season is over.
But it now appears that the airline’s new owners have persuaded ministers seriously to consider an across-the-board cut in tax for domestic flights within the UK.
APD was introduced a quarter-century ago by the then-Conservative chancellor, Ken Clarke. Initially it was £5 for either a one-way or return flight within the UK. But European Union rules mean that it had to be applied to both legs.
Since then, short-haul APD has risen to £13 each way.
Flybe has long argued that passengers within the UK – where it conducts most of its business – are unfairly penalised by a £26 tax. But as climate change becomes more of an issue, the prospect of any cut appeared distant: it would encourage many rail passengers between Scotland, northern England and London to switch to air instead.
One insider has said that Virgin Atlantic and its partners have played an “audacious” game to persuade the government to cut tax. It would feed through to lower fares, fuller planes and higher profits – or, in the case of Flybe’s present state, reduced losses.
Before Virgin Atlantic, the Stobart Group and a US fund, Cyrus Capital, took over Flybe in March 2019, the airline had warned it was on the brink of collapse – and losing £7,000 per hour.
The partners have since injected tens of millions of pounds, the winter season has seen Flybe continue to lose cash.
While plans to slim down the carrier and rebrand it as Virgin Connect continue, the new owners have been alarmed at the scale of losses.
“They’ve played a blinder,” the aviation insider said. “After the government was elected thanks to votes in the regions, they’ve let it be known that travellers will suddenly find that they’re disconnected.”
Flybe already receives tax relief on its Newquay-Heathrow route, which is classified as a Public Service Obligation (PSO) link.
Meanwhile the rail industry has reacted with disbelief to the prospect of cutting the cost of flying and the shift from trains to planes it would trigger.
Lord Adonis, the last Labour transport secretary, told the BBC’s Today programme: “Air Passenger Duty is a ‘green tax’. It raises £3.5bn a year. It’s vital for funding public services.
“Any responsible minister would need to face the fact that if that £3.5bn isn’t paid by air passengers, who create environmental costs, then it has to be paid by general taxpayers.”
Nigel Harris, managing editor of Rail magazine, said that some specific links should be supported – but nationwide cuts would not be right.
“Aviation has an important part to play in the mix of transport choices and with the best will in the world, Cornwall is five hours by rail from London.
“The region struggles economically and it’s right there should be a modest, fast air link and if this has a degree of public support in this only, then I understand that.
“But it should never be a general rule elsewhere where these economic disadvantages do not apply.
“Subsidy control should however be really rigorous, frequently reviewed and if possible ended as business improves.”
Billions have been spent by the government to improve rail links to southwest England and on north-south routes.
Anything that encouraged more people to fly from London to Leeds, Newcastle and Edinburgh would disadvantage LNER, the state-run operator on the East Coast main line.
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