Flybe ‘Re-energized’ by New Fitness Regime

 - July 15, 2013, 11:10 AM
Although Flybe has managed to defer delivery of several Embraer E175s on order, plans call for the 76-seat jets to replace most of the airline’s Bombardier Q400 turboprops. (Photo: Flybe)

Six months after promising a thorough overhaul of its business and having suffered the “most challenging” period in the 10 years since its re-branding from the former British European Airlines, UK regional Flybe reports a “re-energized commercial performance.” In the 12 months leading to March 31, the airline saw losses grow more than five-fold, to £40.7 million ($62 million), driven by increased fuel charges, passenger taxes–which accounted for around 18 percent of its UK-generated ticket revenue–and the costs of restructuring, including the elimination of 490 jobs.

The first phase of the restructuring, unveiled in January, outlined a “slimline” business plan for Flybe UK, within a reorganized group that consolidated its third-party activities such as maintenance, training and contracted flying into a new Flybe Outsourcing Solutions division designed to take advantage of “opportunities available in the European out-sourced aviation market.”

The company said then that it would aim to achieve operational profitability for all group activities in the “medium-term.” It would also cut the numbers of directors, managers and supervisors, while a later Phase 2 would address “revenue-enhancement initiatives,” delivery of further “business efficiencies” and a review of network strategies.

However, not until early this month did it become clear that the management overhaul would include a change at the top, a position occupied by chairman and CEO Jim French since 2001. On July 3 the airline announced that former Easyjet and Air Berlin executive Saad Hammad would assume the CEO post from French effective August 1. French will continue to serve on the airline’s board as non-executive chairman.

Now having embarked on its Phase 2 “Fit to Compete” recovery program, Flybe has already seen planned cost savings revised upwards as initial measures have exceeded targets. Moves have included delaying delivery of new aircraft, deploying 75 percent of its Flybe Finland fleet on lower-risk contract flying and restructuring its UK route network.

In the process of shrinking its Q400 fleet by 20 from a one-time complement of 57, Flybe plans to sell 13 more of the turboprops by March 2016 and defer delivery of 16 E175s from 2014-15 to 2017-19. Operating nine of a firm order for 35 E175s, the airline expects to take four more from September to December 2013, at which time deliveries will halt until February 2016. The airline estimates it will save about $30 million in pre-delivery progress payments this coming winter by postponing the arrival of the 16 E175s.

Flybe flies almost 200 routes, serving 15 countries from 34 UK airports and 51 points on the European mainland. It operates more UK domestic flights than any other airline and the most domestic flights from London Gatwick Airport. The Gatwick distinction will no longer apply next year, however, once Easyjet assumes control of 25 pairs of runway slots it bought earlier this year from Flybe for more than $30 million.

Flybe said the airport’s own strategy drove the “major initiative.”

“Gatwick is determined to maximize revenues from its single runway by increasing prices for regional/smaller aircraft,” said Flybe CFO Andrew Knuckey. “[Its] charges to Flybe have increased by [more than] 100 percent in the past five years and the Civil Aviation Authority will not interfere. The coalition [government] has no aviation policy to protect regional connectivity [and] Gatwick route performance had become unsustainable.”