Sunday , December 6 2020

Flybe: Viable business or destined to fail? – BBC News, BBC News


        

                                 Flybe planeImage copyright                 Getty Images                                                  

Just a year after being rescued, Flybe’s future is again in doubt.

Some have blamed fundamental problems with the business model, others bad management, competitive pressures, unfair taxes, or the vagaries of the oil and currency markets. In truth, it’s a combination of all these, and more.

The firm’s boss Mark Andersonhas told staffThat the firm still has a bright future ahead of it.

But Flybe has been in financial turmoil for years, and there are arguments that if current investors Virgin Atlantic (68% – owned by Delta Air Lines), Cyrus Capital Partners, and Stobart Group, can’t make it work, who can?

The government sees enough value in Flybe to (surprisingly, perhaps) help with a rescue. So, how did we get here? And, crucially, is good money just being thrown after bad?

When did Flybe’s troubles begin?

The Exeter-based airline’s problems did not just emerge this month. It has long-suffered from overcapacity and rising costs.

There was a profit warning in 2019, with higher maintenance costs blamed as a major part of the problem.

Another profit warning in 01575879 said Flybe would sink to a £ m loss, with the airline saying falling consumer demand, a weaker pound and higher fuel costs were the cause.

Flybe, then listed on the stock market, saw its shares tumble**************************** (% in a single day.

Nevertheless, then chief executive Christine Ourmieres-Widener said: “We continue to strengthen the underlying business and remain confident that our strategy will improve performance.”

In November 01575879, two weeks after that optimistic assessment , Flybe announced it was putting itself up for sale. The airline said it was “in discussions with a number of strategic operators about a potential sale” and could cut more flights.

Flybe was bought by Connect Airways – the consortium that includes Virgin Atlantic, Cyrus Capital and Stobart Group – in February last year.

Now a private company, the Flybe group is not due to file its next set of profit and loss figures with Companies House until 4 April. And these accounts will only deal with the airline’s profitability in the period to 4 July, .

But given Connect Airways went cap-in-hand to the government for help, it’s safe to say that the airline’s financial position has worsened.

                                                                                                      Image copyright                 Getty Images                                                  

What is Flybe’s business model?

Flybe is a regional airline, which means it operates smaller aircraft and generally serves communities and airports that are too small to attract the big names in the aviation industry.

Against the likes of Ryanair or British Airways, Flybe is a minnow.

This is both a blessing and a curse.

) Being able to reach the places that other airlines don’t is seen as vital for regional connectivity. Exeter MP Ben Bradshaw went so far as to describe Flybe as a UK strategic asset. On some routes the competition is really only rail or ferry, not other airlines.

and in a country where costly infrastructure projects such as HS2 and Crossrail take an eternity to build, Flybe has provided a nimble solution to tough transport problems. For example, some (****************************************% of Belfast airport flights, and (****************************% of Southampton’s, are operated by Flybe.

The trouble is, Flybe can get “sandwiched” between the business model of budget airlines such as Ryanair and EasyJet, and the network carriers such as British Airways that use short-haul flights to connect with their long-haul services.

if Flybe’s routes to secondary and tertiary locations prove successful, the bigger players are likely to move in, operating the services at lower costs.

It does not help that many Flybe routes are within the UK, where, the airline has long complained, it is at a tax disadvantage.

Air Passenger Duty (APD) is a Levy paid on each leg of the journey within the UK – departure and arrival. For international flights, it is only paid on the outbound ticket.

APD is thought to cost Flybe more than £ (ma year.

)                                                                                                      Image copyright                 Getty Images                                                  

What do we know about the rescue?

Given that Prime Minister Boris Johnson has made improving “regional connectivity” a key part of his industrial plan for the UK, seeing a regional airline go bust probably would not have looked good.

For days after Sky News broke the story that Flybe was on the brink of collapse and had lined up an administrator, the company declined to say anything meaningful about its plight. Then it emerged that the Connect consortium was in talks with the government about a rescue deal.

Details remain sketchy, but this is what we know.

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