Flybe’s new focus on profitable routes as it hits peak fleet in summer 2017

After strong growth since the end of the financial year to March 2015, UK low-fare carrier Flybe says its fleet numbers reached a peak in May 2017 and are now set to fall by 18% over the next three years. The airline’s new CEO, Christine Ourmieres-Widener should reap the benefits of actions taken by her predecessor to limit the impact of surplus capacity ordered by his predecessor.

Flybe’s fleet growth over the past two years has accelerated its growth in seat capacity and this has had a negative impact on its load factor and unit revenue. Together with struggling to control unit cost, this caused Flybe to fall back into loss in FY2017. Ms Ourmieres-Widener has introduced a plan to improve the airline’s performance.

The carrier was within the fastest growing top 20 European airline group last winter, but its capacity growth is slowing this summer and it plans to cut capacity next winter. Freed from the excess fleet growth that burdened its FY2017 result, Flybe now has an opportunity to control its capacity growth, adapt it more closely to demand, and thereby – to restore profits.

CHART – Flybe Annual Network CapacitySource: CAPA – Centre for Aviation and OAG Schedules Analyser

As part of the network optimisation planned by Ms Ourmieres-Widener, Flybe is to increase its focus on the UK. It will withdraw from routes flown entirely within the mainland continent of Europe next winter, although this is only a very small part of its business (accounting for less than 1% of its ASKs in calendar 2016, according to data from OAG).

Flybe is changing its Scottish franchise partner from Loganair to Eastern Airways under a five year agreement commencing in September 2017 and replacing an existing agreement with Loganair, which now plans to operate independently. The two airlines plan a new partnership covering existing Flybe branded routes from Aberdeen, Edinburgh, Glasgow and Manchester to be operated by Eastern under a revenue and risk sharing agreement covering four aircraft.

In the past winter Flybe launched 40 new routes, of which three were in the domestic UK market and 37 were on international routes. Its total of 147 routes comprised 63 domestic routes and 84 international routes. The rebalancing back towards UK operations will reduce its Brexit risk. Although its intra-ECAA activities are very small, its UK-ECAA network is significant, and has some exposure to regulatory risk until the post Brexit UK/EU traffic rights regime is negotiated.

One area of UK domestic expansion already under way is Flybe’s new London Heathrow routes to Aberdeen and Edinburgh, commenced at the start of the summer 2017 schedule. Ms Ourmieres-Widener told analysts that these routes were performing in line with expectations. She expected that the new alliance with Eastern Airways would help as it would strengthen Flybe’s position in Aberdeen.

READ MORE… Flybe plans post peak fleet profit progress; new CEO introduces a business improvement plan