Flybe Reveals Route Results and Further Restructuring

UK low-fare carrier, Flybe, has revealed that over a third of its routes are currently unprofitable and confirmed that although it can make some of these sustainable with improved efficiency, further network rationalisation is sure to be a key weapon in its attempts to overcome its current business frailties.

In a presentation to mark its half year results and a further restructuring of the business, Flybe detailed that 61 of its 158 UK routes do not cover direct operating costs (DOC), crew costs and aircraft costs, with 21 of these not covering DOCs and crew costs and amazingly seven not covering DOCs. This equates to a total of 38.6 per cent of Flybe’s routes operating at a loss.

The airline says its initial restructuring, which includes the closure of its Gatwick Airport base and the suspension of its routes from the London airport in spring next year, will deliver strong results with phase one set to bring £30 million of benefits in 2013/2014 and phase two contributing £10 million of benefits in the same period and £5 million more in 2014/2015.

However, more is required to keep the business going and optimising its configuration by cutting the unprofitable routes, closing other bases and removing surplus aircraft capacity after its fleet is reviewed to match its reconfigured network are all areas the carrier has highlighted for further savings.

The business needed action now,” said Saad Hammad, chief executive officer, flybe. While the economic environment remains challenging, the Board is confident that the actions announced will provide a firm basis for future growth. We will make Flybe the best local airline in Europe. This is ambitious, but achievable provided that we can transform our cost base and efficiency now.”

These immediate actions are expected to provide a further benefit of £7 million this year and £26 million per annum from next year on. But, the axe of some existing markets does not necessarily mean Flybe will downscale its overall activities.

The carrier has recently promoted Fred Kochak to director of route performance and is in the final stages of recruiting a director of network planning. These appointments will support a strategy of identifying new opportunities with the potential to add new routes at some existing focus cities and to identify new focus cities at key points of connectivity.

“There is a significant opportunity confirmed for a great niche business centred around regional connectivity and delivered via a twin-engine business model,” said Hammad in an analyst and investor presentation which revealed the further details of the carrier’s strategic review.

According to Hammad, Flybe has the opportunity to become the favoured operator in any many UK regions where competitor risk is limited even from low-cost carriers. The airline’s structural advantages of operating smaller aircraft can make many regional routes economic with higher frequencies, provides access into more convenient, smaller airports and by using a hubbing structure – as offered at Manchester - can attract multiple origin and destination passengers. This, the CEO highlights, more than offsets LCC lower units costs and will enable Flybe to carve out a “uniquie niche positioning”.

Flybe is currently the largest carrier by passenger and frequency share at five of the main airports in its network (Belfast City, Birmingham, Exeter, Manchester and Southampton) and the number two carrier at Scotland’s two largest airports at Glasgow and Edinburgh. In the table below we look at the largest points on the Flybe network during the 2013 calendar year.