Defining viability

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Flybe may be the first major company to be tipped over the edge by a drop in sales as a result of the coronavirus, but it won’t be the last.  And it seems that the probability of company failures is likely to mirror the probability of a fatal infection in humans, in that it is the most vulnerable which are most at risk.  Flybe was certainly in the vulnerable category anyway; how long the company would have survived even without the drop in revenue resulting from the virus is an open question.  We may well see coronavirus becoming another convenient excuse for failures which might well have happened anyway.

That makes it harder for government – whether in Cardiff or in London – to decide when and how to intervene to support failing companies.  Whilst it’s clear that government intervention is the only way of preventing some failures during the probable epidemic facing us, governments are historically not very good at identifying which companies are good bets and which are poor ones.  At the level of individual companies, that may not always matter a great deal – after all, if a company was a good bet, it would usually be able to obtain commercial finance, and needing government action to fill a commercial gap is a sure sign that the commercial case isn’t as strong as it might be.  Expecting the same proportion of success from government investment as one might expect from commercial investment is wholly unrealistic; the more marginal the cases being assisted, the greater the probability of failure, a point not well understood by some critics of government policy, especially here in Wales.

That’s no excuse, though, for throwing public money into hopeless cases, especially where the public purse ends up carrying all the risk and all the potential reward flows to the company’s owners.  At its simplest, a company which cannot sell a sufficient quantity of its goods or services at a high enough price to at least cover its costs and liabilities (and preferably to make a profit on top) is not viable, and tax payment holidays or government grants cannot change that underlying picture.  A company which claims that it would be viable if only it didn’t have to pay one or other form of tax really isn’t viable in the real world within which companies must operate.  From all the news stories which have appeared in recent months, I rather suspect that Flybe is not a viable proposition, with or without coronavirus.  On many – perhaps most – of its routes, it is simply not selling enough seats at a high enough price to cover its costs.  As with vulnerable humans, the virus has merely brought the end forward a little.  I’m not sure that some of the politicians bemoaning the impact on Cardiff Airport fully understand that economic reality.

The question that needs to be asked now is not ‘how do we rescue Flybe or find another operator to take over the routes?’ so much as ‘why is the demand for the routes being flown insufficient to cover the costs of operating them?’.  Paying people to run loss-making and environmentally damaging flights in order to boost the fortunes of a loss-making airport doesn’t immediately strike me as the best way of meeting what appears to be a very limited demand for travel between the relevant places.