IAG boss condemns Flybe rescue deal

'Deal is a a misuse of public funds' – Willie Walsh of IAG

Flybe’s 2,300 staff, and the passengers with half-a-million advance reservations on the troubled airline, woke up with much more certainty about the future.

On Tuesday evening the business secretary Andrea Leadsom and transport secretary Grant Shapps said that a deal had been reached with the consortium, led by Virgin Connect, that now owns Flybe.

The UK’s biggest regional airline had been involved in last-ditch talks with ministers about its future, with reports that it would be closed down if the government did not offer help to keep it flying.

Flybe is being allowed to defer handing up to £100m in Air Passenger Duty (APD), and has been given an assurance that the government will review the tax that adds £13 to most short-haul flights.

Airlines, including Flybe, have long lobbied against APD.

The review is thought likely to lead to a cut in the flight tax within the UK, which will in turn reduce the cost of flying and help domestic airlines sell more seats.

The government’s move has been deplored by climate-change campaigners including the Flight Free campaign, Greenpeace and Friends of the Earth. They say that travellers should be encouraged to fly less, not more.

Now one of Europe’s most influential airline bosses has joined the chorus of disapproval.

Willie Walsh, chief executive of IAG – parent company of British Airways – described the deal as “a misuse of public funds”.

BA competes with Flybe on some routes.

In a reference to the US airline that owns 49 per cent of Virgin Atlantic, Mr Walsh said: “Virgin/Delta now want the taxpayer to pick up the tab for their mismanagement of the airline.”

But the leading economist, Hamish McRae, has come out in support of the deal.

In The Independent, he wrote: “In principle it sounds a terrible idea. The airline is a commercial company backed in part by Sir Richard Branson’s Virgin group.

“Boris Johnson's government did not do anything to rescue the much larger Thomas Cook Airlines last year. Some people caught up in that collapse are still waiting for refunds.

“Bad in principle, but maybe wise in practice. The idea that taxation should be crafted so as to support wider social and economic objectives is at the core of all public policy.”

He said that a cut in domestic flying tax could be offset by a £10 rise in APD for travellers heading for Europe.

“Currently a return flight from Manchester to Malaga a week today comes in around £90. Adding another tenner to APD might not discourage many people flying there, but it might put a few off flying, and it would protect revenue.

“Cleverly done it could actually increase the total revenue take, and maybe cut carbon emissions too.”

Flybe is shortly to be rebranded as Virgin Connect. Staff at its Exeter HQ are in talks about job cuts as the carrier becomes closer to Virgin Atlantic.