British airline Flybmi ceases operations amid “Brexit uncertainty” and rising fuel and carbon costs

Published by Dylan Rana on

The East Midlands based airline announced it will be ceasing operations and filing for administration, effective immediately, citing the EU’s exclusion of UK airlines from the Emissions Trading Scheme, and Brexit uncertainty.

In a press release, a spokesman for the airline said:

“The airline has faced several difficulties, including recent spikes in fuel and carbon costs, the latter arising from the EU’s recent decision to exclude UK airlines from full participation in the Emissions Trading Scheme.”

“Current trading and future prospects have also been seriously affected by the uncertainty created by the Brexit process, which has led to our inability to secure valuable flying contracts in Europe and lack of confidence around bmi’s ability to continue flying between destinations in Europe.”

The spokesman claimed “the challenges, particularly those created by Brexit have proven to be insurmountable”, and that closure was the “only available option”, despite £40m in investment totalled throughout the regional airline’s six year tenure.

The release, replacing the airline’s website, also details further steps customers who had flights booked with Flybmi can take; including refunds and advice on claiming back related spending on hotels and transport.

BMI plagued by rising fuel and carbon emission costs

The Emissions Trading Scheme is an EU trading scheme where tradeable permits are assigned to firms that emit carbon dioxide to combat climate change by reducing the overall level of carbon-dioxide emissions.

This system is coined as: “cap and trade”. A cap is set on the total amount of certain greenhouse gases that can be emitted by the EU, in certain industries covered by the scheme. Within the cap, firms receive or buy emission allowance that dictate the maximum emissions, and if the firms operate below that limit, they can trade with one another as needed. Over time, the EU reduces the cap as polluters in order to reduce the total carbon emissions.

The EU, however, decided to limit the scope of the EU ETS to flights within the European Economic Area to support the development of a global measure by the International Civil Aviation Organization (ICAO), therefore proving an exception for UK airliners, not operating in the EEA. The global measure, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), will be implemented by 2021, and is a market-based measure to drive down carbon emissions specifically for the airline industry.

Source: Financial Times

Though, the EU’s move to make way for this new system has led to an increase in carbon costs within the ETS. The airline claimed this squeezed BMI, contributing to the “difficulties” leading to the closure of the airline.

Brexit challenges “insurmountable”

Flybmi hasn’t by any means, been the only player to be affected by devastating Brexit uncertainty. Business investment has stifled under growing concerns of a no-deal Brexit, with Office for National Statistics said it fell 1.1% in the Q3 2018.

Howard Archer, chief economic adviser to the EY Item Club, said: “This strongly suggests businesses were cautious over investment as doubts mounted as to whether a Brexit transition arrangement would come into being next March and companies looked for greater clarity over the UK’s likely long-term relationship with the EU.”

Investment in transport equipment, which includes aircraft, was 12 per cent lower in the third quarter of 2018 than during the final three months of 2017.

This has deflected foreign investment away from the UK, for example Japanese firm Hitachi’s cancellation of Wales’ £16m nuclear power plant.

Brexit uncertainty has also troubled firms relying on exported materials, with a weaker pound pushing up costs. This proved an issue for restaurants and cafes suffering from pushed up food prices. Prezzo, Byron, Jamie’s Italian and Carluccio’s have all closed outlets this year due to pressure from rising costs, with Patisserie Valerie citing rising costs as a contribution to their administration crisis.

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