UK regional airlines: Flybe or not Flybe? Connectivity!

The UK government's decision to help Flybe financially, deferring some of its air passenger duty payments, signals the socio-economic and political importance of regional air services.

It has also prompted criticism from rivals. IAG has complained that the deal breaks EU state aid rules (although, with Brexit imminent, the Boris Johnson-led government may not care). EasyJet and Ryanair have argued that taxpayers should not prop up a rival airline.

The deal is thought to be conditional on Flybe's shareholders (Virgin Atlantic, Stobart Group and Cyrus Capital) investing new capital, less than a year after they bought it. Before the government's intervention, they had appeared reluctant.

After others (Monarch, bmi regional, Thomas Cook) were allowed to go bust, this marks a sharp change of direction by the UK government on bailing out struggling airlines. The case focuses on jobs, regional connectivity (Flybe is the biggest UK domestic regional airline), and Flybe's importance to several smaller airports.

Flybe's change of ownership has not changed its structural problems and neither will this bailout. Instead, a more structural solution would be to split Flybe into three: competing for justifiable subsidy on designated public service obligation routes; operating those routes that can be commercially profitable; and exiting routes with no prospect of sustainable profitability.