Flybe initiates formal sale process
By November 14, 2018 23:03

Flybe initiates formal sale process

Flybe is undertaking a comprehensive review of the various strategic options, which includes a full sale as well as further capacity and cost saving measures.

Evercore has been appointed as the airline’s financial adviser to assist it with this review and possible sale.

Flybe has confirmed that it is in discussions with a number of strategic operators about a potential sale of the company.

The carrier posted a fall in its half yearly net profits today of 54% to £7.4 million for the six months to end September 2018. Revenues also fell by 2.4% to £409.2 million for the period.

Chief executive Christine Ourmières-Widener stated that although the airline had reduced seat capacity in the first half by 9.0% delivering a 7.2% increase in revenue per seat and continues to make improvements, there has been a “recent softening in growth in the short-haul market, as well as continued headwinds from higher fuel and currency costs”. In response, she says, the airline is “reviewing every aspect of our business, especially further capacity reduction, cash management and cost savings,” adding that this is “already starting to have a positive impact” but that more needs to be done in the coming months.

Flybe’s reported adjusted profit before tax increased to £14.0million compared to £9.4million in the prior-year period. Excluding the impact of the E195 onerous lease, the adjusted profit before tax of £9.9million, Flybe says, is slightly ahead of guidance given in the October trading update. The net profit of £7.4million reflects £6.6million of non-cash revaluation losses on US dollar aircraft loans whereas in the prior-year period, the company realised gains of £6.7million.

Flybe’s net assets increased to £118.6million, compared to £91.5million in the six months to end March, 2018, which reflects improved hedging gains given adverse sterling and fuel price movements and a lower pension deficit. Its net debt increased to £82.1million, including £70.6million cash that reflects the seasonality of cash and adverse sterling movements.

For the half year, Flybe reports a 7.9% improvement in passenger revenue per seat to £60.18 (H1 2017/18: £55.75). Load factors improved by 8.0 percentage points improvement to 84.0% reflecting a better utilisation of the fleet. Passenger volumes increased by 0.6% to 5,241 thousand, and there was a 2.3% decrease in passenger yield to £71.65, of which c. 1% was due to the removal of credit card fees from January 2018.

Flybe reduced seat capacity by 9.0% to 6,240 thousand reflecting the smaller fleet and has reported a 5.9% increase in reported cost per seat (‘CPS’) or 2.6% at constant currency. Cost per seat (CPS) at constant currency and excluding fuel decreased by 0.1% reflecting stronger underlying cost control; CPS remains an area of focus for further cost control improvements for the airline.

Flybe is continuing with its fleet reduction plan. The company is on track to reduce the fleet size to an optimum level of 70 aircraft, including the five ATR aircraft fulfilling the SAS White Label contract. At 30th September 2018, the fleet size totalled 78 aircraft compared to 80 at 31st March 2018 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. As announced in June 2018, in line with the strategy to retain the Q400s as the aircraft of choice for Flybe’s fleet, Flybe has extended the leases of five Bombardier Q400 aircraft which immediately reduced the rental costs on these aircraft. Flybe says: “The removal of the Embraer 195 fleet will help further strengthen the performance by boosting load factors and yield as popular routes are flown by the smaller, and more cost efficient, Embraer E175 jets and the Bombardier Q400 turboprops.”

Flybe comments only that it is “developing contingency plans including potentially reassigning contracts that could be directly affected” in the event of a no-deal Brexit, although it also shares the confidence of its team that “an appropriate agreement will be reached”.

The company states that the third quarter is showing a positive improvement with 63% of seats sold, compared to 59% of seats in Q3 2017/18 and shows a 2.0% increase in passenger revenue per seat. Flybe is continuing to reduce capacity, a fall of 3% expected in the second half of the financial year, reflecting the smaller fleet, lease extensions and the latest winter schedule. Flybe is 96.9% hedged for its anticipated fuel requirements at USD606 and 74.7% of its anticipated US Dollar requirements at USD1.35 for H2.
By November 14, 2018 23:03