Macroeconomics: UK economy, IB Economics

Flybe has gone into administration, putting 2,000 jobs at risk and having the potential to provide a significant negative regional multiplier in places such as Exeter and Southampton, where the airports are heavily dependent upon the company's flights.

Sad days - the Flybe Southampton to Newcastle route was a staple of my life for nearly a decade - although I have to confess that I did once fly on a plane with only 9 passengers, which even at the time made me wonder about the route's viability.  

The nature of the government's support for Flybe is under scrutiny - does it comply with EU rules on state aid, and is there a case for extending a loan on broadly commercial terms.

The latter raises interesting questions about an appropriate role for the state: if Flybe is already unable to secure a commercial loan, then why should the government step in? It smacks of a return to the 'cherry picking' of the 1970s when governments stepped in to protect failing businesses, often unsuccessfully.

Such moves have a high opportunity cost, often result in government failure and generate unfair distributional issues. 

Interesting reflection on the troulbes facing Flybe, with lots of good economics here. The deferral of Air Passenger Duty (APD) appears to be one option that the government is considering as a way of saving the airline, not least because it doesn't infringe EU rules on state aid - of course, Leavers will cite this an an example of why this is a good reason for being out of the EU. The reality is that interventions, such as this are rarely based on good economics.

This fact is reflected in the concept of moral hazard, mentioned by Simon Jack, and you should be aware of the concept, and how it applies in this instance. However, my overriding impression is that it's manifesto pledges, not economics that are driving the formation of policy in this instance.

Now that's what I call an unintended consequence - the coronavirus might actually imperil the government's bailout of Flybe. 

Who would have thought it?

An agreement to save Flybe has, teomprarily been reached, with investors putting in more money and the government promising to review Air Passenger Duty. 

It will be interesting to see what emerges. And how much it costs.

I'm not for a moment suggesting that this is largely Brexit-determined, because to my mind it isn't, but it doesn't play well in the post-Brexit era.

As things stand Europe's largest regional airline, Flybe, is in financial difficulties and may collapse, directly costing 2,000 jobs and more in related sectors. It's not the first bit of bad job news of 2020. 

Additionally, there are some who worry that the collapse of the airline has adverse social implications for parts of the country that aren't well-served by other types of transport infrastructure.