Government to UK aviation industry: Drop Dead

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Following a number of days of talks with British Airways, Virgin Atlantic, easyJet and representatives from UK airports, the Government has refused to provide a package of financial support for the UK aviation sector.

According to reports, a letter was sent by the Chancellor of the Exchequer this afternoon which made it clear that there would be no industry-wide package of measures.

Government to UK aviation industry - drop dead

The Government did say, however, that it would be prepared to talk to airports or airlines “as a last resort” when they would otherwise need to appoint an administrator.  There would be no discussions until companies were at the brink and had exhausted all other options for raising finance.

The letter implies that any deal would involve the Government taking partial or full control of the airline or airport involved through the acquisition of newly issued shares and would not involve any Government loans.

Whether of not the Government chose to save any particular business would depend on:

“whether the business makes a material contribution to the economic activity of the UK, the importance of maintaining a thriving competitive aviation sector in the UK to deliver connectivity and the equitable and fair treatment across businesses in the sector”

Here is the full text (click to enlarge):

Rishi Sunak letter to aviation sector

and

Government letter to aviation sector

The reference to ‘maintaining a thriving competitive aviation sector’ looks like a signal to Virgin Atlantic that the Government is willing to take it over if required.  There had been some speculation that Virgin Atlantic could be sacrificed as long as British Airways was protected.

The Government stated that airlines and airports are already benefitting from the ability to reclaim up to £2,500 per month of the salary of furloughed workers.  There was also an implication that the Government may soon allow non-investment grade companies to access pots of state funding which may benefit the weaker players in the sector.

In terms of airports, Karen Dee, chief executive of the Airport Operators Association, said in a statement:

“After having publicly announced a support package for airports and airlines, we’re surprised by where we find ourselves today. Our industry will now have to fight on its own to protect its workforce and its future”

In terms of ‘what does this mean for me’, I would say that in no circumstances now should you accept a credit voucher from British Airways, Virgin Atlantic or easyJet.  Insist on cash.  It is an unnecessary risk if you have an option.

Now that the Government had made it clear that no financial support will be available, it is unlikely that banks will be queuing up to provide loans to the sector.  The credit card companies are also unlikely to release the funds they are refusing to pass over for flights booked in the future.

In the case of IAG and easyJet, it would be virtually impossible for them to issue new shares in the market at this time – although both have enough reserves to keep going for 3-4 months.  (The Sunday Times said last week that British Airways was losing €200m per week so, assuming IAG as a whole is losing €400m per week, their €9 billion of liquidity is good for another 3-4 months.)

For more information on this, click this Google search link and visit the Financial Times story at the top.  Doing this gets you over the FT paywall.  The Sky News version is here.

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Comments

  1. I thought the credit card not releasing cash thing was being addressed by the government Rob, not just for airlines either?

  2. southlondonphil says:

    The Chancellor’s stern response is in part as a result of the speed with which Branson stuck his begging bowl out (again, so soon after the Flybe fiasco!), and easyJet merrily throwing cash reserves away in dividends to their shareholders RIGHT IN THE MIDDLE of a crisis.

    They’re saying “Help will be made available, but only AFTER you take seriously your executive and managerial responsibilities to keep your company afloat” – which seems perfectly fair IMO

  3. matthew goodwin says:

    So Rob, do you think we should be considering to exchange Virgin airmiles now into other schemes? im sitting on 0.3m and would hate to lose them should Virgin get into further financial difficulties (purely selfish I know!).

    • +1 – I’m in the same boat and not sure what to do or what to transfer them to!

    • Rob is never going to say “transfer out / get rid off your Virgin miles” – because it will be very damaging to Virgin if everyone transfers out their miles. If Virgin collapses he will just say “I didn’t see this coming”.

      • Rob hasn’t transferred his personal miles out 🙂

        • How do you know he is telling the truth?

          • Doug M says:

            What’s the point of a question if you don’t believe the answer.

          • What am I meant to do with 4 million Hilton points?! 2m Virgin miles is 4 x family holidays in Upper Class which is more manageable.

      • If there was a way of preserving 100% of your value then I’d suggest it. However, it’s not for me to recommend that people deliberately destroy 50% of the value of their miles (albeit that they are avoiding a potential 100% wipe out).

        • Harry T says:

          @Rob do you think VS will go bust? Asking for complete conjecture here.

          • Virgin will have to give the keys to the Government within a few weeks, and if the Government doesn’t want the keys it will go bust, yes. There is no alternative. The only potential saving grace is that Delta just got bailed out by the US Government so it may be able to put some money into Virgin. The rules could easily ban this, however, and Delta may be happy to pick up Virgin’s Heathrow slots from receivership. It may even have taken security on the slots as part of its investment to guarantee it would get them.

  4. Hi, what about a longer range Jan 21 club avios 2 for 1 booking costing £1200 in taxes. Although Im expecting we will be travelling by then ( hope anyway) do you think a refund of taxes is at risk if BA goes under?

    • Shoestring says:

      worst case scenario, you’d lose everything

      why not wait a while to think about it? (unless you think the online cancellation workaround might get stopped & you’d have to spend hours waiting on the phone)

      or if you are worried/ want certainty, cancel using the workaround, all you’d lose would be the £35 each

      • Shoestring says:

        if you paid on a *credit* card, you’d have Section 75 protection which might reassure you a bit

        • I paid on the BA Amex. Can someone help me out with the workaround link? Thanks

  5. Nickinkent says:

    I totally agree with the Government. BA sold its heart some years ago to the City and Investors and took down a great company in the process to make a weak one for consumers. I do feel for the employees, but the fact they can claim like other businesses to keep employees on there books should be strong enough assistance. You can’t have your cake and eat it BA. You chased market dominance and expansion and investor payouts verses customer service and employee engagement. Now turn to the investors to help, as you clearly helped them.

  6. NuthyD says:

    Just last week where you not pointing out that Easyjet was in a much better financial position than IAG?

  7. This is completely in line with “f**k business” philosophy

  8. IAG stock +15% this morning. For Rob, with love.

    • Of course it’s up (ignoring the broader market moves). As soon as Virgin and Norwegian fail, BA has a virtual monopoly on US flights. And as soon as those two fail, the Government will be rushing to support BA because it will be in panic. This is what I predicted in my original article on what would happen, if you go back a couple of weeks. The markets love a monopoly.

      • insider says:

        A monopoly would be 1 supplier if I’m not mistaken? Aren’t there more than one airline across the Atlantic? Delta, United spring to mind. And what about the 1 stops via Lufthansa, Air France etc? Maybe you should read up about the term ‘monopoly’ on your Open University course on economics 🙂

        • Very few pure monopolies (i.e. 100% market share) exist – closest you’d possibly get would be something like Gillette and the razor market. Hence, most people agree that a company has monopoly power when it has a controlling interest in an industry, generally over 40-50% of an industry. BA + AA already have over 50% (BA on its own is nearly 40%) [using easiest figures I can find online] – if Virgin went bust, you’d have to presume BA share would go up further as I guess most in the UK would rather flying on a British airline than an American one

          But then if Virgin went bust, BA would have a pure monopoly on being on the only British airline to offer direct flights to America, let alone non-stop…

      • Lufthansa is down 3%. And they have a monopoly in central Europe. Not convinced they “like monopolies”.

        • But nothing has changed with Lufty’s position – it was a German long-haul pseudo-monopoly yesterday and remains one today. Yesterday BA had two UK-based/focused competitors to the US and today it looks like it won’t have any within a couple of weeks.

  9. David S says:

    Is there any recommended strategy for protecting our investment in points ? e.g ensuring you add at least one night in a hotel and paying by cc for any booking or ???

  10. BA is definitely too big to fail so will get a bail out of needed. But whether Virgin falls into that category too remains to be seen. Interesting times ahead.

  11. Peter K says:

    @Ghengis

    I transferred out some Virgin miles to Hilton over the weekend via text, as did my wife. She’s received an email from [email protected] whereas I have not.

    Dear [MRS K]

    Thank you for contacting us regarding your HH transfer.

    With the current pandemic Covid19 and the extreme amount of calls that we have on hold for customers with flights in the next few days.

    We have decided that we are going to cover Data Protection over email instead to help our members.

    Can you please forward the following information please.

    Name

    Date of birth

    Current and previous address

    Last flight taken etc etc

    Kind regards

    Flying Club Support

    Did you get anything like this as it’s an email address I don’t recognise and seems very vague.

    Thank you for your help.

    • Doug M says:

      By insecure email? More and more you see requests that invite data loss rather than ensure identity. The amount of questions some BA call centre bod would ask prior to all this to establish your identity was in itself creating risk.

      • Peter K says:

        It just seems really suspicious as it didn’t include the surname, did not include the Virgin Atlantic account number and was asking for details “etc etc” !

    • Bagoly says:

      Reads like a phish, but in the current circumstances junior staff may be sending emails without proper
      review.
      That email address does appear on a FlyerTalk thread.
      I would have thought ‘phone or chat would be best response – it would be pretty unlikely for a general phishing exercise to be multi-channel.
      If you do reply to the email, type in the email address from scratch rather than clicking on “Reply”.

      • Genghis says:

        I got a similar email from [email protected], which is a genuine email address. As noted, it looks a bit dodgy but they were asking for my name and date of birth and how I accumulated my miles. The VFC miles had already left my account after the text.

    • They responded to my text (slowly, but understandable) to say that they are unable to help as they are only dealing with people who are travelling in the next 72 hours and come back to them within 72 hours of when I’m due to travel. Pretty hard to do that with no travel date…

      I live in Scotland, so frankly VA miles and the companion voucher have little value for me anyway.

      Any chance they’re trying to avoid transfers out to Hilton etc at this stage?

    • I think I would be very wary responding to that email or the one Ghengis replied to. Have you checked whether the VFC miles have left your account(s) and have they hit Hilton? I think I would wait to see if I got a follow up email.

      • Peter K says:

        I never got an email but my transfer was a smaller amount. The miles have left both accounts already but area not in the Hilton Ives yet (can take up to 30 days).

        • Genghis says:

          The last two VFC->HH transfers I’ve done have taken 7 days. Let’s see how long this one takes…

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