Flybe, Europe’s biggest regional airline, is back on the market and looking for potential buyers after confirming it is undertaking a comprehensive review of various strategic options including a formal sale process.
The carrier has been undertaking a major revamp of its organisation, fleet and operations over the course of the past two years as it bids to turn around its fortunes.
Chief executive officer, Christine Ourmières-Widener, who joined Flybe in January last year, said: “There has been a recent softening in growth in the short-haul market, as well as continued headwinds from higher fuel and currency costs. We are responding to this by reviewing every aspect of our business. We remain confident in the vital role that Flybe plays in UK connectivity.”
The Exeter-based airline operates 192 routes out of 75 airports. It confirmed profits yesterday for the six months from April to September 2018 had fallen by 54% to £7.4 million, compared to the same period last year. Revenues fell by 2.4% to £419.2 million. Capacity fell by 9%, although passenger revenue per seat encouragingly rose by 7.9% to £60.18 (£55.75 in the same period last year).
No potential buyers it is in discussion with have been identified, with the airline only stating it is talking with “a number of strategic operators”. Flybe and the Stobart Group held unsuccessful sale talks earlier this year, with Stobart walking away from its bid in March after they failed to agree terms.
Flybe is currently valued at around £25 million, a price that could tempt other airlines to look more closely at all or parts of its comprehensive UK network.
The airline said in its results report that options include further capacity and cost saving measures, initiatives to strengthen the balance sheet and preserve cash resources, as well as the potential sale of the company. The company’s board has appointed Evercore as its financial adviser to assist it with this review.
Headwinds
Ourmières-Widener commented: “Continued improvements are being seen into quarter three which demonstrates the popularity of Flybe for our customers. However there has been a recent softening in growth in the short-haul market, as well as continued headwinds from higher fuel and currency costs. We are responding to this by reviewing every aspect of our business, especially further capacity reduction, cash management and cost savings. This is already starting to have a positive impact, as shown by the improved first half adjusted profit before tax; however, we must do more in the coming months.”
Adjusted profit before tax actually rose to £14 million compared to H1 2017’s figure of £9.4 million. Net debt increased to £82.1 million.
Operationally, there was an 8% improvement in load factor to 84%, compared to 76% last year, reflecting better utilisation of the fleet.
Flybe says its ongoing fleet reduction programme remains on track to eventually reduce the fleet size to an optimum level of 70 aircraft, including wet-leasing five ATR aircraft fulfilling the SAS White Label contract. At 30th September 2018, the fleet totalled 78 aircraft, compared to 80 at the end of March following the return of one Bombardier Q400 turboprop and one Embraer E195 jet at the end of their lease terms.
A further two end-of-lease Embraer E195 aircraft are due to be handed back in H2, which will bring the fleet size to 76 by the end of March 2019. There are two Q400s and five E195s contracted for redelivery in 2019/20. There are four E175 aircraft contracted for delivery from July onwards in 2019/20.
It has also extended the leases of five Q400 aircraft, which immediately reduced the rental costs on these aircraft, it added.
On the MRO front, the airline says its Single Engineering Organisation (‘SEO’) concept is progressing and that its MRO activities are expected to be transferred to Flybe Limited in H2 2018/2019 with the objective of reducing complexity and cost. It has reduced third party maintenance work to allow more dedicated support to its own fleet, to further improve reliability and on-time performance.
On the personnel side, Sir Timo Anderson stepped down as a Non-Executive Director to join the Executive Committee last month and become chief operating officer, replacing Luke Farajallah. Sir Glenn Torpy was appointed to replace Anderson as the chair of the Safety and Security committee. Rob Pendle has been appointed chief technical officer.
For the third quarter, it said it had shown an increase in seat sales of 4% to 63% sold compared to the prior year’s quarter. It also highlighted a 2% increase in passenger revenue per seat for the quarter.
