The announcement last October was stuffed with the manufactured excitement one expects from any venture touched by Sir Richard Branson’s Virgin brand. The “long-awaited” rebranding of Flybe as Virgin Connect would mark the start of the airline’s “journey into the future as part of the extended Virgin family” under a “tremendously re-energised team”.
Now comes a detour on that journey, a trip to two government business departments to ask for emergency financing. The airline, the departments for business and transport and Flybe’s shareholders, including Virgin Atlantic, would not comment on the reports but, since all parties would have a strong incentive to quash any untrue tale, one must assume high-stakes bargaining is at a critical point.
Flybe can’t afford the negotiations to be leisurely. Credit card providers, who can find themselves on the hook for cancelled flights, tend to panic in these situations. Last February’s £2.2m purchase of Flybe by the Connect consortium had to be accelerated in its final stages because lenders were withholding money from the airline to protect themselves from the risk of default. So clarity is needed, and quickly.
The main obstacle to a rescue, one must assume, is deep reluctance to risk public money by lending to a private company where the owners bought the business less than a year ago and, as the quotes above indicate, revved the engines confidently last autumn. Indeed, the Connect consortium, having bought Flybe at a knockdown headline price, said they were willing to invest £100m. They spoke excitedly of the potential of Flybe to feed Virgin’s long-haul network out of Heathrow and Manchester. What’s changed?
Increased trading losses? Higher fuel costs after sterling’s decline last summer? Brexit uncertainty? None of those risks were unimaginable 12 months ago, so it would be hard for Virgin and its consortium partners – Stobart Air and the US investment firm Cyrus Capital – to plead that they’ve been struck by exceptional events. Flybe has suffered many crises in many forms in its 40 years of flying.
A better card to play in front of ministers would be to point to Flybe’s role as the main operator of UK domestic flights, and thus its contribution to regional connectivity. The government is preaching a gospel of “levelling up” between regions, so presumably would be reluctant to see Flybe fail. In that sense, the airline is a more “deserving” case than Thomas Cook, where the hole in the package holiday market can be filled by rivals. Besides, Flybe’s numbers will be substantially smaller than Thomas Cook’s.
Yet the bare-minimum requirement for any public support should be this: Virgin and its partners should have to dig deep themselves. So no more talk about an intention to invest in improving Flybe. Only upfront, at-risk capital will do.
Even with that qualification, it’s impossible from outside to tell if there’s a sensible deal to be done that protects the public purse. But the underlying principle ought be clear: Virgin and its partners cannot expect a free ride.
Fines in their billions are fine for big tech
As Alphabet, as Google calls itself these days, shapes up to become the fourth of the US big tech firms to reach a stock market capitalisation of $1tn, it’s worth recalling old legal battles.
One, which was naively regarded as breathtaking at the time, was the €2.42bn fine from the EU in 2017. Google abused its dominance of the search engine market in building its online shopping service and “denied other companies the chance to compete on merits and to innovate,” the competition policy commissioner, Margrethe Vestager, said.
Include various other fines and the EU has fined Google about €8bn for anti-competitive practices over the years. It’s a stunning sum in and of itself but, versus $1tn in corporate worth, it can almost be lost in the wash.
It’s hard to believe regulators would be able easily to add a zero to their penalties to deter monopolist behaviour by digital giants. But a billion here, and a billion there, now looks puny.
