TURBULENCE AHEAD FOR BUDGET FLIGHTS
UNcERTaiNTy over Brexit negotiations undoubtedly played a part in the decision by the owners of Flybmi to call in the administrators over the weekend. Passengers are increasingly nervous about booking with lesser known carriers in the run-up to March 29, despite the EU’s agreement that British-based and British-owned airlines will be able to fly to and from the continent and overfly Europe for at least nine months after the UK leaves.
The company’s owner, airline investments, must also take a hefty share of blame for its financial travails, but Flybmi’s problems are also a reflection of a far broader malaise in the airline industry.
The rise of a new generation of discount carriers, challenging the dominance of established no-frills players such as EasyJet and Ryanair, means that there is huge overcapacity in the industry.
in essence, the numbers of seats outstrips the volume of travellers. This has meant a bonanza for consumers who are able to travel to Europe, and more recently cross the atlantic, at super low prices.
But it has been destructive for the discount carriers.
Transatlantic carrier Norwegian has, after initial success and growth, plunged into losses and is desperately looking for an injection of cash. Hungarian-owned Wizz air has plunged into losses. Even Ryanair, Europe’s most profitable airline, owned up to losses in the last quarter.
Meanwhile, tour operator Thomas cook has put its profitable airline up for sale as part of a drive to raise new funds, while Monarch went bust last year.
a rescue deal for much larger regional carrier Flybe has been launched by Richard Branson’s Virgin and Stobart (owners of Southend airport) which together have pumped in tens of millions of pounds to keep its planes flying while they wait for shareholders to agree its sale to them for a nominal £2million. This is being challenged by american investor coltrane, which owns 16 per cent, and thinks Flybe is being sold too cheaply.
FlyBMiand Flybe are also made more vulnerable because of the power of the banks behind the credit cards used to book flights. if they fear that an airline might be in difficulty, the credit card firms withhold cash transfers to the airlines. They know if they go bust, customers will be entitled to a refund, depriving them of the capital needed to stay in the air.
adding to the problems are volatile prices for jet fuel on the global markets. The biggest players, such as international airlines Group (aiG), which owns British airways, have strong balance sheets which allow them to buy hedges – a form of insurance against fuel price changes. This protects them against sudden movements. Such deals are less open to smaller players.
Of course, all of this is little comfort to the thousands of Flybmi passengers left stranded in Europe, or at UK airports by the company’s demise this weekend, but they are victims of an industry in distress.