Following the collapse of Flybe, it’s more important than ever to support suppliers and minimize the risk of disruption for the whole supply chain.

March 03, 2020
By David Venables
By David Venables

Early on 5th March it was announced that Flybe had gone into administration. The fall of the UK’s largest operator of domestic flights has put 2,400 jobs at risk, while bringing disruption for the passengers who have been stranded and forced to find alternative travel arrangements. It also comes as bad news for passengers who depend on the airline’s domestic routes – although other airlines have already stepped in to take on some of Flybe’s routes.

So what caused Flybe’s collapse, what could this development mean for the airline’s suppliers – and why is it more important than ever for businesses to support their supply chains in times of adversity?

Mounting challenges

The news of Flybe’s collapse followed a number of crises in recent years. Last year, the airline was rescued by Connect Airways – a consortium of Virgin Atlantic, Stobart and Cyrus Capital – which invested over £135m to keep the business running. In January 2020, with the airline facing a £106m air passenger duty (APD) bill, it was reported that Flybe had obtained a rescue package from the UK government, in the form of a tax holiday. Talks were also ongoing about the possibility of reducing APD, which adds £13 to short-haul flights in the UK and which disproportionately affected Flybe.

This month, however, the business finally went into administration after the government turned down its request for a £100m loan. According to the Independent newspaper, another blow was struck when a fuel supplier refused to extend further credit to the airline. At the same time, the slump in demand for air travel as a result of the coronavirus outbreak proved insurmountable for Flybe.

This also follows a similar shock to the airline industry in 2019, when UK travel giant Thomas Cook went into liquidation, further stressing the importance of effective supply chain management.

Domino effect

In addition to the impact on its employees, the demise of Flybe also comes as worrying news for the airline’s suppliers. Nadine Houghton, GMB national officer, warned that as well as the impact on Flybe’s workforce, “a domino effect now puts 1,400 jobs in the wider supply chain at immediate risk and threatens the future of vital regional airports.” Those at risk could include check-in staff, baggage handlers and taxi drivers.

In particular, regional airports such as Southampton Airport, which had relied on Flybe for 90% of its business, will be facing major challenges as a result of this development. The GMB Union has warned that as many as eight regional airports are at risk.

Other airlines are likewise feeling the impact of the coronavirus outbreak, which has seen flights suspended and passenger demand fall significantly. The International Air Transport Association (IATA) has forecast that airlines could lose as much as $113 billion in revenues this year, equating to a loss of up to 19% of worldwide passenger revenue.

The current climate also brings major challenges for the travel industry as a whole: cruise lines, for example, have cancelled hundreds of trips in recent weeks. Suppliers to the industry are likewise facing challenging times: a poll by the Global Business Travel Association (GBTA) found that almost a quarter of the supplier companies polled had seen a ‘significant’ effect on revenues as a result of the coronavirus outbreak, with airlines among the most affected.

Securing the supply chain

While the current challenges may be considerable, in times of adversity it’s more important than ever that businesses keep a close eye on their supply chain health and take steps to ensure suppliers have access to the liquidity they need. Suppliers around the world are frequently paid late by their customers, bringing significant disruption and hindering their ability to fulfil orders.

For companies seeking to protect themselves and their supply chains, it’s important to consider actions that may bolster the supply chain. Supply chain finance, for example, can allow businesses to optimize their own working capital position while offering suppliers early payment, thereby cementing key relationships and reducing the risk of disruption to the supply of goods. Early payment solutions also bring suppliers much-needed certainty over the timings of upcoming payments.

Such solutions can be particularly valuable in the current climate. The day before Flybe’s collapse, incoming Bank of England governor Andrew Bailey emphasized the importance of ensuring that suppliers have access to the funding they need during times of adversity. Speaking to MPs on the Treasury Select Committee, he said: “It’s reasonable to expect we are going to collectively have to supply some supply chain finance in the not too distant future to ensure the shocks from the virus are not damaging to many firms … in particular to small firms.”

The issues faced by Flybe were both numerous and complex. But as other organizations navigate the current challenges, it will be more important than ever to support suppliers and minimize the risk of disruption for the whole supply chain.