Flybe collapses putting jobs and air routes at risk

Flybe collapsed into administration as the UK regional airline blamed a coronavirus-induced slump in passenger demand for exacerbating existing pressures on its finances.

Europe's biggest regional carrier went bust after emergency talks with the government over a £100m loan failed on Wednesday afternoon. The company's failure puts at risk more than 2,000 jobs and many domestic UK air routes that act as important transport links.

In a statement Flybe said administrators from the accountancy firm Ernst & Young had been appointed to oversee its winding up. The company warned customers not to travel to airports without an alternative flights arranged.

"All flights have been grounded and the UK business has ceased trading with immediate effect," Flybe said. It blamed "significant funding challenges … compounded by the outbreak of coronavirus which in the last few days has resulted in a significant impact on demand".

Flybe approached the government in January asking for emergency funding. A cut to airport passenger duty at next week's budget was also suggested to ease pressure on its finances.

But the £100m loan proposal was criticised by competitors such as British Airways' owner IAG and the government rejected Flybe's last-ditch request on Wednesday. Flybe initially had enough money to see it past the budget but a sharp drop in sales caused by the coronavirus pushed it over the edge, the Financial Times reported.

Grant Shapps, the transport secretary, said it was "very sad" that Flybe had collapsed. "We are urgently working with [the] industry to identify how key routes can be re-established by other airlines as soon as possible," he added. Flybe is the latest casualty of intense competition in the travel industry and its failure follows the collapses of Thomas Cook last year.

Environmental campaigners opposed the proposed reduction in passenger duty, which contributes around £3.7bn a year to the exchequer, saying it would undermine efforts to reduce carbon emissions. IAG and other competitors also questioned why Flybe should be bailed out when it was owned by a consortium of Virgin Atlantic, Stobart Air and hedge fund Cyrus Capital.

The government now faces questions about the future of important UK regional air routes that connect parts of the country such as the southwest of England and Northern Ireland. Flybe operated almost 40% of domestic UK flights and carried more than 9m passengers a year but struggled to make those operations profitable.

Loizos Heracleous, a professor and aviation industry expert at Warwick Business School, said: "The proposed rescue deal would have been a short-term fix, not a long-term solution. Cash injections and deferring its air passenger bill would merely kick the can down the road. Reducing air passenger duty would have also benefitted Flybe’s competitors, such as easyJet, who would have continued to offer flights at lower cost. It was not the answer."