Are competitive flights good for Guernsey?
THOSE who have demanded ‘competitive flights’ in Guernsey should now be careful what they wish for. Flybe is about to be rescued by Virgin Airways. Flybmi has just gone into administration – and won’t be the last. Germany’s Germania filed for insolvency last month and six other airlines have recently folded. In addition, loss-making Norwegian Air is having to be partially refinanced.
Mid-size, low-cost airlines are in trouble. These are airlines for whom the world, not just a market the size of Guernsey, should be their oyster but fuel costs, regulation, taxes and landing fees all add to the competition from larger airlines which enjoy greater economies of scale.
Those, including the Economic Development president, who think the open skies policy approved by the States last year will sustainably reduce flight costs into and from Guernsey, while still maintaining standards, must live on some other, utopian, planet.
Economics dictates that when competition has driven down prices, forced others out of business and created an inevitable duopoly, if not ultimately a monopoly, prices will rise again to beyond the previous level and services will deteriorate, including fewer flights and more delays.
The first stage of that process must now be about to happen.
It is even more worrying that the president can only see indirect economic benefit in the location of airline spend rather than the business revenues which airlines enable.
The revenues brought to Guernsey administrators, lawyers, accountants, hoteliers, taxi drivers, bankers and directors through flight-facilitated business, fees which have a multiplier effect on the Guernsey economy, far exceed the first order financial effect. And that is without counting the cost to the taxpayer of misguided double subsidy.
Guernsey has a gem in Aurigny. The only way to ensure that this lifeline for our economy can be sustainable is to funnel the naturally limited revenue flow of a small island economy through its books rather than have those revenues cannibalised by the international competition for whom Guernsey will ultimately be of no consequence. This argues for maintaining a state-owned monopoly but with tough service level standards. It argues for target-specified (not general) state subsidy to leverage commercial revenue and a broader recognition that this is not about an airline.
It is about a lifeline on which depends absolutely the health of the Guernsey economy.
St Peter Port.