Flybe profits slump after hit from rising aircraft maintenance costs as airline sheds loss-making routes to shape up

Rebecca Smith
More turbulence for Flybe as it battled the fall in sterling and rising maintenance costs
More turbulence for Flybe as it battled the fall in sterling and rising maintenance costs (Source: Getty)

Flybe reported a drop of nearly 50 per cent in profits in its first-half results, after warning last month that profits would be lower than expected.

The figure came in at the upper end of the £5m-£10m guidance range Flybe had announced last month.

The airline said today it will continue to work at keeping costs down, and that capacity will start to drop in the second half of the year as it trims its fleet size and focuses resources on fewer, more profitable routes.

Shares dipped 1.38 per cent in mid-morning trading.

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The figures

The regional carrier reported a 9.3 per cent rise in group revenue to £418.5m from £383m this time last year.

Adjusted profit before tax dropped 47.2 per cent to £8.4m, which the airline said was largely to due to a previously announced "one-off onerous IT contract provision", as well as the impact of increased aircraft maintenance costs.

The airline has suffered from the slump in sterling, to the tune of around £10m. Maintenance costs were affected as most space parts and rotables are priced in dollars.

Flybe has seen an improvement in load factor, gauging how efficiently a carrier fills its seats, rising four percentage points to 76 per cent, while it also recorded a rise in the revenue it makes per seat, up 8.8 per cent to £55.29.

Why it's interesting

The airline's shares slumped last month on the news of its profit warning, and it comes at a time of uncertainty in the aviation sector, after the troubles with Alitalia and Air Berlin, and most recently Monarch's collapse at the beginning of last month.

Flybe did warn that the European aviation market "continues to be challenging" with many airlines buffeted by excess seat capacity in the short-haul market, along with the weaker pound and both business and consumer uncertainty.

Despite this, it said that within that market, Flybe's board offers "a differentiated regional business model and has clear plans to deliver a sustainable profitable future helped by the plans to reduce capacity and cost".

Flybe announced back in June it was implementing a sustainable business improvement plan in an effort to propel profit and cash generation. Today, the carrier said it remained on track to reduce its fleet size "to an optimum level" for the number of identified profitable routes, and making the business "demand-driven rather than capacity-led".

It intends to reduce its fleet size over the next three years to around 70 aircraft, having peaked in May this year at 85 aircraft. Five loss making routes have already been closed.

What the company said

Christine Ourmieres-Widener, Flybe's chief executive, said:

Load factors are expected to continue to strengthen as the fleet reduces and we anticipate that yields will stabilise.

While half-year profits are lower than last year, due to the one-off IT contract costs, higher maintenance expenses and the impact of the fall in the value of sterling, I am confident that we are on a clear path to sustainable profitability through the investments and improvements we are making at Flybe.

In the second half, we will focus on improving our cost base and reliability performance while preparing the business for the future as we invest in the new digital platform.

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