MercoPress. South Atlantic News Agency

Flybe collapses and all its flights are grounded: fierce competition and coronavirus

Flybe, which employs 2,000 people, had failed to turn around its fortunes since being purchased by the Connect Airways consortium last year

One of Britain's biggest airlines, Flybe, collapsed on Thursday with all its flights grounded, the company said, as the coronavirus epidemic takes a heavy toll on airlines around the world.

A statement on Flybe's website said the company had entered administration and could not arrange alternative flights for its passengers.

“All flights have been grounded and the UK business has ceased trading with immediate effect,” said the airline, which avoided going bust in January only after being granted a tax holiday by the UK government.

Flybe, which employs 2,000 people, had failed to turn around its fortunes since being purchased by the Connect Airways consortium last year, initially owing to weak demand and fierce competition.

That has now been compounded by the coronavirus, with a slew of airlines cancelling flights and warning profits would take a hit from decreased demand.

The announcement came hours after British media reported that the airline could collapse following its failure to secure a £100 million (US$129 million) state loan to help stabilize the business.

The COVID-19 virus' impact on travel “has made a bad situation much worse”, sources told the BBC, while Bloomberg News reported Thursday that no agreement could be reached on a virus-related bailout.

Small British airlines have suffered recently from volatile fuel costs and a weak pound. Flybe is the biggest operator of UK domestic flights. The no-frills airline carries around eight million passengers annually and flies from 43 airports across Europe and 28 in Britain.

Its owner, the Connect Airways consortium, is led by Virgin Atlantic and also includes investment firm Cyrus and infrastructure specialist Stobart.

Following Flybe's tax deferral earlier this year, rival companies including British Airways-parent IAG complained to the European Union that it was receiving unfair state aid.

The government has said its assistance does not breach EU rules and that help is based on the importance of the company's domestic services and regional economic reliance on them.

However, that contrasted with the fate of British holiday giant Thomas Cook, which collapsed without government assistance last September, causing the loss of 22,000 jobs worldwide and stranding 600,000 holidaymakers abroad.

Flybe collapse came a day after Ryanair chief executive Michael O'Leary predicted that the coronavirus crisis would lead to bankruptcies. “It's inevitable in the next couple of weeks we'll see more failures,” O'Leary said.

“Where you have a massive short-term decline in bookings you have a massive short-term decline in cash flow,” he said on the sidelines of an industry event in Brussels on Tuesday.

The epidemic could cost passenger airlines up to US$113 billion in lost revenue this year, an industry body warned on Thursday, more than three times a projection it made just two weeks ago as the virus continues to spread around the world.

The warning from the International Air Transport Association (IATA) came as Flybe became the first big casualty of the slump in travel demand and Norwegian Air scrapped its profit forecast for this year.

Norwegian Air, a pioneer of low-cost transatlantic travel, has also been struggling for years due to cut-throat competition and heavy debts built up during rapid expansion.

The company, which has repeatedly raised cash from shareholders to stay in business, said on Thursday it was scrapping its 2020 earnings guidance, which had predicted a return to profit after three years of losses, due to the drop in travel demand and disruption caused by the virus.

It also said it would cancel 22 long-haul flights between Europe and the United States from Mar 28 to May 5, with routes from Rome to Los Angeles, Boston and New York seeing a reduced number of departures.