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Ryanair demands same 'tax holiday' amid Flybe rescue deal backlash

Gwyn Topham Transport correspondent
<span>Photograph: Phil Noble/Reuters</span>
Photograph: Phil Noble/Reuters

Ryanair has demanded that the government extend any “tax holiday” granted to Flybe to other airlines or be in breach of competition and state aid laws.

In the growing industry backlash against the rescue of the regional carrier, the Dublin-based airline said that it had written to the chancellor, Sajid Javid, to request the same treatment as Flybe’s “billionaire owners” – who include Sir Richard Branson and Delta Airlines.

Ryanair’s chief executive, Michael O’Leary, warned that Flybe would “undoubtedly fail once the subsidy ends”.

The details of the rescue agreement have been kept under wraps since Tuesday evening, when ministers led by Javid announced that Flybe had been saved. The package is understood to involve the short-term deferral of an outstanding air passenger duty (APD) tax bill of £106m, a possible loan, and the promise to review APD levels before the March budget.

Air passenger duty, or APD, is a British tax on aviation, introduced in 1994. It is charged on each passenger on flights departing from the UK, and set according to the distance of their final destination and the class of travel.

Destinations are grouped into two bands, above and below 2,000 miles from London, and charged at three rates – effectively for economy class, premium economy and business/first-class seats. All short-haul flights to Europe, including domestic, are charged in the same band, rising from £13 in economy to £78 in first class. A long-haul first-class flight now attracts APD of £528.

Airlines have long lobbied against the tax, particularly after the rates were doubled in 2007.

Flybe has argued that it is especially hard hit as the tax only applies to UK departures, and is therefore applied to each leg of a domestic return flight. That means, for example, that a return flight from Cardiff to Manchester is taxed at £26, while an international return flight from the UK to Moscow pays £13 in APD.

Long-haul flights from Northern Ireland are exempt from APD, as well as departures from remote parts of Scotland.

The Department for Transport is also examining whether more Flybe routes could qualify for subsidy under the public service obligation, which funds Flybe’s London-Newquay service.

O’Leary said: “This government bailout of the billionaire owned Flybe is in breach of both competition and state aid laws. The Flybe model is not viable, which is why its billionaire owners are looking for a state subsidy for their failed investment.”

Taking issue with the business secretary Andrea Leadsom’s claims that Flybe was “most definitely a viable business”, O’Leary continued: “The reason why Flybe isn’t viable is because it cannot compete with lower fare services from UK regional airports on domestic and EU routes provided by Ryanair, easyJet, BA and others – and it cannot compete with lower cost road and rail alternatives on many smaller UK domestic routes.

“If Flybe fails, as it undoubtedly will once this government subsidy ends, then Ryanair, easyJet, BA and others will step in and provide lower fare flights from the UK regional airports, as we already have to make up for the recent failure of Thomas Cook [Airlines].”

He said the subsidy would not comply with competition or state aid rules “unless the same APD eco tax holiday and other government subsidies are extended to all other UK competitor airlines”.

O’Leary’s comments came after Willie Walsh, the chief executive of British Airways’ owner, IAG, described the bailout as a “blatant misuse of public funds”. IAG on Thursday submitted a freedom of information request to the government demanding transparency on the rescue package, asking for details of any moves on APD, and what assurances it had from Flybe’s owners over their investment.

A government spokesperson said: “The government has not given any state aid to Flybe.”

Stobart Group, one of the co-owners of Flybe parent company Connect Airways, confirmed that its fresh shareholder investment after the rescue deal was a maximum of £9m, making the full contribution from Virgin Atlantic – owned by Branson and Delta – and Cyrus Capital a total of £30m.

Stobart said the consortium had already provided £110m in funds, and blamed the six-month wait for EU clearance of its takeover of Flybe for delaying turnaround plans, culminating in the airline’s latest crisis.

MPs, unions and businesses in the regions had urged the government to step in and help Flybe, which serves almost two in five domestic UK flights and employs more than 2,000 people. It carries 8.5 million passengers a year and is the main airline at several regional airports, including Belfast, Southampton and Exeter.

However, it had failed to stem multimillion losses since a 2010 flotation, despite redundancies and attempts to cut leasing costs and unprofitable routes.