The government is to consider cutting air passenger duty on all domestic flights as part of a plan to save regional airline Flybe from collapse.
Chancellor Sajid Javid is to meet later with the business and transport departments to discuss lowering the levy, the BBC’s business editor says.
The change would allow Flybe to defer a tax bill and implement a rescue plan.
By applying the move to the whole industry, the government would avoid breaching EU state aid rules.
It could also improved regional connectivity, a key Conservative manifesto pledge.
Sky News reports the possible deal over air passenger duty could see Flybe defer a payment of more than £100m for three years.
It would potentially give the Exeter-based company time to set up turnaround plan, financed by a consortium led by Virgin Atlantic which rescued the airline a year ago.
It would also secure more than 2,000 jobs at Flybe which are at risk if the company fails.
- Flybe boss ‘focused’ on turning airline around
- Why Flybe matters: ‘Valuable connectivity’
Air passenger duty (APD) is charged on all passenger flights from UK airports, excluding Northern Ireland and the Scottish Highlands and Islands region.
The amount depends on the destination and class of travel. Under current rules, passengers on domestic flights pay £13 in APD for a single journey, with higher rates for longer flights and premium cabins.
Flybe is a long-time critic of air passenger duty which it said disproportionately burdens its domestic customers because they have to pay it each time they take off from a UK airport.
Changes to air passenger duty could reduce the billions of pounds the charge generates for the government, which is expected to reach £3.7bn this financial year, according to Office for Budget Responsibility.
But Prime Minister Boris Johnson made improving transport links in the UK’s regions a central plank of the Conservative Party manifesto.
Beleaguered Flybe asked the government to consider deferring tens of millions of pounds it owes in airport duty to help stave off the collapse of Europe’s biggest regional airline.
That presented the government with two problems.
First, the creation of what Prime Minister Boris Johnson has previously described as a “moral hazard” – a dangerous precedent that would lead struggling companies to believe they could rely on the government to help them if they got into financial difficulties.
Second, any company-specific assistance would likely fall foul of EU rules on state aid.
The solution? An industry wide cut to airport duties for internal UK flights.
That proposal will be discussed at meetings between the Treasury, the Department for Transport and the Department for Business scheduled for later today.
It allows the government a chance to help Flybe while delivering on its promise to improve regional connectivity.
But it comes at a cost to the public finances and may be criticised for making it harder to deliver on promises to reduce the UK’s carbon emissions.
Flybe carries about eight million passengers a year from airports such as Southampton, Cardiff and Aberdeen, to the UK and Europe.
Its network of routes includes more than half of UK domestic flights outside London.
A group of local councils in Devon, where Flybe is headquartered, said: “We are aware that certain aspects of national policy, notably the air passenger duty regime in relation to domestic flights, has a significant impact on the company’s business model.”
Flybe came close to collapse a year ago but was rescued by Virgin Atlantic, Southend Airport-owner Stobart Group and hedge fund Cyrus Capital Partners.
They paid £2.8m for the airline and agreed to invest £100m in the loss-making business.
Flybe has refused to comment on talks over a rescue.
Its chief executive Mark Anderson told staff on Monday the airline is continuing to operate as normal.
“I do appreciate that the headlines some of you have already read are disturbing but I want you to know that we are determined to do everything we can to make this work,” he said.
As long as Flybe carries on flying, there is no need to worry and certainly no reason to try to get your money back, writes Simon Gompertz, BBC personal finance correspondent.
If the airline was to fail, however, all flights would most likely be cancelled. Those with paid-for bookings could find they lose their flights and their cash.
If your flight is part of a package deal covered by the ATOL scheme, then you should be protected and have the right to a re-booking or refund.
Otherwise you can try to retrieve the money from your credit card company, if that’s how you paid. There is also a debit card chargeback scheme which can help.
Many travel insurance policies are not much use in these situations, unless you stumped up extra for the Scheduled Airline Failure option or something similar.
Those stuck overseas might be left hoping that the government will direct the CAA to step in, as it did when Monarch and Thomas Cook went under, to bring back stranded passengers for free.
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