TravelingForMiles.com may receive commission from card issuers. Some or all of the card offers that appear on TravelingForMiles.com are from advertisers and may impact how and where card products appear on the site. TravelingForMiles.com does not include all card companies or all available card offers.
Some links to products and travel providers on this website will earn Traveling For Miles a commission that helps contribute to the running of the site. Traveling For Miles has partnered with CardRatings for our coverage of credit card products. Traveling For Miles and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone and have not been reviewed, endorsed or approved by any of these entities. For more details please see the disclosures found at the bottom of every page.
There’s an incredible amount of nonsense doing the rounds right now and the lastest involves suggestions that the British government shouldn’t be offering assistance to Virgin Atlantic and that the airline should be allowed to go to the wall. As usual, these suggestions are coming from people with little or no understanding of what Virgin’s demise would mean, people who don’t understand how a bailout could be structured and people who are incapable to see past their dislike of Sir Richard Branson. Hopefully, the UK government will ignore them all.
Let’s get a couple of things very clear from the outset:
- I have no interest in seeing the UK taxpayer handing over free cash to Virgin Atlantic or its shareholders
- I don’t like billionaires who avoid paying tax any more than anyone else
Right, now that that’s cleared up let’s move on…
Why The Airline Should Be Bailed Out
Fares, Routes & Competition
The idea that the UK consumer will be just fine with a single full-service airline (British Airways) is ridiculous. British Airways and American Airlines already control a disturbingly large percentage of the traffic between the UK and the United States and the disappearance of Virgin Atlantic would strengthen their position even further.
With its only serious low-cost transatlantic competitor (Norwegian) permanently on the brink of bankruptcy, do you really believe that British Airways wouldn’t feel free to raise fares and cut the routes it doesn’t really want to operate if Virgin Atlantic was removed from the scene too?
All you have to do is to take a look at how Lufthansa treats Germany and how its routes have been pared back since Air Berlin went bankrupt to get an idea of how things would look in the UK….and at least Lufthansa doesn’t stick to flying out of just one region.
To anyone who’s suggesting that Virgin Atlantic’s demise wouldn’t be bad for consumers, I have this request: Give me one example of a situation where reduced competition in the aviation industry hasn’t been detrimental to consumers. I bet you can’t.
Jobs
According to the latest figures I could find, Virgin Atlantic employs over 8,500 people and most of those jobs are based in the UK. The people suggesting that taxpayer money shouldn’t be used to keep Virgin Atlantic afloat don’t appear to have considered (a) what would happen to all the people who would suddenly be jobless (and who currently contribute to the economy) or (b) where the money to pay for all these jobless welfare benefits will be coming from.
If 8,000+ people are suddenly made jobless there’s going to be a significant and sudden rise in the number of people claiming benefits (that’s taxpayer money by the way) and a lot more people not contributing positively to the economy (spending their wages).
With a sensibly structured bailout deal that keeps Virgin Atlantic in business, there’s no reason for the taxpayer to end up footing any kind of bill, but it will be taxpayers paying for all the welfare benefits that will be claimed when 8,000+ people lose their jobs.
A bailout deal should, at the very least, be cash-neutral to the taxpayer (it should turn out to be cash-positive) but welfare payments aren’t something that the taxpayer will ever recover. Why would you choose to create unemployment and lose money when the alternative is so much better?
How The Bailout Should Work
The argument that UK taxpayers shouldn’t be bailing out Virgin Atlantic is only one that carries weight if you assume that the bailout will involve handing over cash to the airline in a similar way to how the gutless US administration caved to the demands of its own airlines…but it doesn’t have to be like that.
I’m already on the record as having said that airline bailouts should be based on cash-for-equity deals and that shareholders should be wiped out if they have to crawl to the government for funds…and that applies just as much here as it does to any other scenario.
This really isn’t complicated: Either Virgin Group and Delta get together to come up with the money that Virgin Atlantic needs to survive or the UK government steps in and injects the funds the airline needs in return for a significant controlling interest in the airline.
This would be a win for the airline (it lives to fly another day), it would be a win for employees (they keep their jobs) and it would be a win for the taxpayer because the government would be able to recoup its investment by selling off its holding when times improve (like it did with some of the banks following the last economic crisis).
The only losers in this scenario would be the shareholders (Delta and Virgin Group) and as people don’t appear to like either of them very much would anyone really care?
Bottom Line
The people arguing that Virgin shouldn’t be bailed out apparently think that there are only two options on the table – a massive injection of free taxpayer money which the taxpayer will never see again or a bankrupt airline – but that’s simply not the case.
I’m not sure where that particular assumption has come from or if that’s just an assumption people are choosing to make because they don’t like Richard Branson (and it suits their narrative to paint things that way)…but it’s not true.
Even if the UK government ends up giving Virgin Atlantic an asset-backed loan (admittedly not something I’d be overly happy with), the UK taxpayer would still not be losing out and it’s disingenuous to suggest otherwise.
Finally, allow me to end with this:
It’s amusing to see just how many people are happy to moralize about Richard Branson’s alleged tax avoidance (and use that as a reason for the UK government to let Virgin Atlantic go to the wall) while, at the same time, having no apparent moral issue with seeing 8,000+ people lose their jobs at a time where they have next to no chance of finding another one.
Morality is a funny thing…especially if you only apply it to others.
