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Flybe Looks To Free Itself From UK APD Stranglehold

by Jason Gorringe,, London

29 January 2013

Budget airline Flybe has announced that it will slash its UK workforce by 300, and has blamed the UK's Air Passenger Duty (APD) for its declining profitability.

According to a filing with the London Stock Exchange on January 23, 2013, Flybe is to cut approximately 300 jobs in the UK, from its Exeter, Manchester and Newcastle operations, to help achieve cost savings of GBP35m (USD55m).

According to Flybe's Chief Executive, Jim French, the company's "turnaround plan" will involve an increased presence in Europe, where tax is less onerous, and fewer flights in the United Kingdom. "Today’s announcement of a turnaround strategy for the UK business is a clear indication that Flybe has a plan not only to address the challenges we face, but also one to exploit the opportunities available, particularly in Europe."

"It is the first time in almost 30 years of business that we have had to take such action. However, faced with the brutal impact of a 160% rise in Air Passenger Duty over the past six years and the consequent 20% decline in domestic traffic over the same period, we have to recalibrate the business. There is no escape from the GBP68m per year APD tax burden which Flybe has to pay as a result of increases successive governments have levied on the industry. Flybe now pays more than 18% of our ticket revenues to the government in APD, whilst other UK-based carriers who operate a greater proportion of their business outside of the UK pay less than 6%."

Concluding, French said: "Recognizing that any significant change to either the UK economy or the redistribution of APD is likely to be some way off, this announcement represents a clear and realistic plan with a measurable timescale and benchmarks, based upon significant restructuring and cost reduction to return Flybe to profitability."

UK APD is the most draconian tax of its type worldwide, and critics have said that the government has transformed the environmental levy into a crisis-time "cash cow." APD on fares has risen markedly since the levy was first introduced in 1994, from rates of between GBP5-10, to GBP13-184 at present. APD is to rise again on April 1, 2013, and business jets are also to be brought into the tax net.

TAGS: environment | tax | business | air passenger duty (APD) | aviation | United Kingdom | environmental tax | tax rates

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