Chancellor urged to slash taxes to save airlines: 2,400 jobs go in Flybe collapse as industry faces £86 billion bill
Airlines have pleaded with the Chancellor of the Exchequer to slash air passenger duty (APD) in the Budget next week to prevent more airlines from going bust.
As Flybe became the fourth UK airline to collapse in two years, the industry lobby group lambasted ministers for not doing enough to help as carriers are hit by the Covid-19 outbreak.
The intervention came as the International Air Transport Association warned the spread of the disease could cost airlines around the world up to £86billion this year – almost four times as much as was estimated just two weeks ago.
As Flybe became the fourth UK airline to collapse in two years, the industry lobby group lambasted ministers for not doing enough to help as carriers are hit by the Covid-19 outbreak
Shares in airlines have crashed, as bookings have slumped and hundreds of flights have been cancelled.
British Airways owner IAG fell 5.4 per cent yesterday, taking losses in two weeks to 33 per cent, while Ryanair was down 5.6 per cent and Easyjet 4.4 per cent.
Norwegian Air became the latest carrier to scrap flights, blaming a ‘reduced demand on some routes, particularly on future bookings’.
While many airlines were fiercely opposed to a government bailout of Flybe, bosses are furious that ministers have not used their powers to protect the wider industry.
Pressure is now mounting on Chancellor Rishi Sunak to slash APD after the Government promised to review the tax.
Tim Alderslade, chief executive of Airlines UK, said: ‘Flybe’s problems were known to many and the sector as a whole is going through an incredibly tough period.
This is now the fourth UK airline to go out of business in two years. The Government is right to say aviation is a commercial proposition and the market should win out but they are not using the policy levers at their disposal to help.
‘APD is the prime example of a disproportionate and penalising policy that is holding us back.’
The duty is paid on all passenger flights from UK airports, excluding the Scottish Highlands and Islands, and is charged at £13 for a single, short-haul economy class flight from a UK airport.
Passengers on domestic flights have to pay the duty on both legs of a return trip. This meant Flybe, which is Europe’s largest regional airline, was particularly hard-hit.
Its owners, including Virgin Atlantic, failed to persuade the Government to provide a £100m loan to cover a huge air duty bill.
Virgin Atlantic said a 40-50 per cent drop in bookings forced it to pull the plug on Flybe, putting 2,400 jobs at risk.
A review into APD was launched in January shortly after the Government stepped in with a rescue deal for Flybe.
But the Chancellor is under huge pressure from environmentalists to resist a cut, arguing it would encourage more people to fly and would not be compatible with the net zero carbon emissions target.
The Government may face legal challenges if it slashes APD.
Although hugely unpopular, APD is a cash cow, forecast to generate £3.9billion this year.
The Treasury said: ‘We are reviewing APD ahead of the Budget to ensure regional connectivity is strengthened while meeting climate change commitments.’
…and cruise firm feels the chill
Saga shares dropped 6 per cent after its cruise arm was hit. Its tour operator division has also suffered a 20 per cent slump in forward passenger bookings for 2020/21
Over-50s firm Saga has seen shares sink due to cancellations and falling demand.
Shares dropped 6 per cent after its cruise arm was hit. Its tour operator division has also suffered a 20 per cent slump in forward passenger bookings for 2020/21.
Saga said: ‘The evolution of Covid-19 and the impact this will have on full-year earnings for 2020/21 cannot be predicted with any certainty.’
William Ryder, at Hargreaves Lansdown, said: ‘The outbreak has hit the sector. Saga wasn’t in a great place to begin with.’