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Is the airline industry set for more turbulence after Flyglobespan collapse?

Yesterday's collapse of Scotland's largest airline, Flyglobespan, came as a surprise to many people and there are now concerns that the sector as a whole could be on the verge of another period of turbulence. While the events at British Airways, where a potential 12 day strike has been threatened, have taken the headlines over the last few weeks there is no doubt that some of the U.K.'s smaller airlines are struggling.

The demise of Flyglobespan is a bitter blow to the sector as a whole because ultimately banks will now be concerned about the short-term outlook for other operators and we could see a tightening of credit. There will also be concern amongst consumers who will be worried about potentially booking travel arrangements for tomorrow only to find out their airline hits trouble this evening. This will then lead to cash flow issues for many of the smaller companies which could have potentially fatal implications.

While we will no doubt hear representations from the industry about the need for financial assistance from the government, it basically comes down to an issue of confidence in the sector. However, if you take a look further back over recent years it is easy to see how the UK government has continually built up the tax burden for UK airlines and the impact which this is now having on some of the smaller operations.

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