A domestic airline feels the pinch thanks to the chancellor’s double dipping Air Passenger Duty

Marc Sidwell
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THE UK’s largest regional airline Flybe used its distinctly earthbound results to attack George Osborne yesterday, counting “illogical hikes in stealth taxation” among the causes of its £6.2m pre-tax loss. While Osborne got deservedly upbraided this weekend when he tried to make the Eurozone crisis an excuse for the UK’s stuttering recovery, Flybe has a better case for passing the buck. The economics of airlines are never pretty, but regulatory weight doesn’t help a bad situation.

It wasn’t always this way. Flybe’s shares soared on listing in late 2010, but a series of profit warnings has taken its market cap down to around 24 per cent of its listing value. It remains popular with passengers, and has excellent punctuality scores, but those aren’t enough in a marketplace where UK domestic air travel has fallen by a fifth since 2007, and the airline’s fuel costs rose 15 per cent over the last year.

When coping with those kinds of economic headwinds, it’s not helpful to find the government holding you back. Yet by operating four times more domestic UK flights than anyone else, Flybe finds itself doubly weighed down. First, it must pay the Air Passenger Duty (APD) – which rose by eight per cent in April and is the highest aviation tax levied in Europe. And as if that wasn’t enough, it must pay APD twice on most of its flights. APD is levied on every flight taking off from a UK airport, so domestic flights get hit coming and going. Flybe has already paid £119m, 11 per cent of its Flybe UK revenues, in APD.

With the government about to launch its UK aviation consultation, Flybe at least has the chance to make its case. Its European expansion plans will have to contend with the unpredictable consequences of the Eurozone crisis and a looming tit-for-tat air war between global carriers and the EU’s Emissions Trading Scheme. Meanwhile China is planning to build 70 new airports by 2015. Flybe can’t pass all the blame, but politicians have certainly made the UK and Europe cruel places to be a regional airline.

Marc Sidwell is City A.M.’s managing editor.