flybe faces challenging future; new CEO Hammad to lead network changes with focus on European and leisure routes

Jim French, Chairman and Chief Executive Officer, flybe

After over a decade in charge, Jim French (right) is 'moving upstairs' to become non-Executive Chairman. The airline has appointed former easyJet Chief Commercial Officer Saad Hammad (left) as its new CEO. He will oversee the airline's newly-announced plans to focus more on European and leisure destinations, to reduce its exposure in the declining (and highly-taxed) UK domestic market, which accounts for three-quarters of the airline's weekly seat capacity.

Europe’s largest regional airline, flybe, recently announced the appointment (from 1 August) of a new CEO, Saad Hammad (a former CCO at easyJet), with Jim French, the current Chairman and CEO, becoming non-Executive Chairman from the same date. The airline recently posted disappointing financial results and has embarked on a “Fit to compete” turnaround plan. One of the airline’s biggest challenges is its exposure to the UK domestic market, which has been shrinking since 2005, and where the government’s APD (Air Passenger Duty), which now stands at £13 for domestic flights, is applied to both sectors of a domestic return journey.

Leading airline in UK domestic market by flights

According to statistics from the UK CAA, flybe was by far the leading operator of domestic flights in the UK in 2012. Its almost 100,000 domestic flights represented 31.4% of all UK domestic flights operated by UK airlines. These flights carried just over five million passengers, representing a 26% share of the UK domestic market. If the 556,000 passengers carried by flybe franchise carrier Loganair are added, then flybe is responsible for carrying around 29% of all UK domestic passengers. However, easyJet carried just under six million passengers to rank first, while British Airways and its London City based subsidiary BA CityFlyer, carried a combined 5.35 million passengers.

flybe 2001-2012 Annual domestic passengers (millions) and market share

Source: UK CAA

The UK domestic market peaked back in 2005 at just over 23 million passengers. Last year UK carriers transported only just over 19 million passengers between UK airports. flybe’s share of the market has held fairly stable at around 25% since 2009. The rapid growth in 2007 and 2008 can be explained by the airline agreeing a deal with British Airways to take over that carrier’s regional subsidiary, British Airways Connect, at the start of the summer 2007 season.

Domestic market dominates flybe’s network

Analysis of the network that flybe operates this summer (excluding its operations in Scandinavia and Finland) confirms the dominant role of the UK domestic market. In terms of flights and seats UK domestic routes (plus flights to Ireland) represents around three-quarters of the airline’s operations, but in terms of ASKs (Available Seat Kilometres), which is a better indicator of revenue, the UK and Irish markets now represent just under 60% of flybe’s activities.

Market Flights % Seats % ASK % Routes
UK domestic / Ireland 76.5% 74.9% 58.5% 81
France 11.0% 11.3% 14.3% 33
Cities 9.2% 9.2% 13.4% 15
Spain / Portugal 3.3% 4.6% 13.8% 10
Source: Innovata / Diio Mi for 15-21 July 2013

Southampton – Scotland routes have highest ASKs

Analysis of flybe’s network for this summer shows that measured by ASKs, the airline’s two biggest routes are from Southampton, on the UK’s south coast, to Edinburgh and Glasgow in Scotland. Seven of the top eight routes are domestic, with seven international routes making the top 15, five of which are to Spain or Portugal. Two of the airline’s biggest routes are to London Gatwick (from Belfast City and Inverness), which will end at the start of the summer 2014 season as flybe withdraws all flights (25 pairs of slots) from Gatwick. This is in response to the world’s busiest single runway airport raising charges for smaller aircraft, to maximise its own throughput. flybe has agreed a £20m with easyJet, the benefits of which will be spread over the next 12 months.

flybe's top 15 routes by ASKs (m) Weekly ASKs (weekly frequencies)

Source: Innovata / Diio Mi for July 2013

bmibaby’s demise creates East Midlands opportunities

Analysis of which routes flybe has started (and dropped) from its UK airports during the last year shows that there are roughly the same number of each. Major expansion at East Midlands took place last autumn, after bmibaby failed to attract any suitors when it was put up for sale last summer and was subsequently closed.

UK Airport New routes since July 2012 Dropped routes since July 2012
Aberdeen (ABZ) London Gatwick (LGW)
Birmingham (BHX) Amsterdam (AMS), Lyon (LYS) Hamburg (HAM)
East Midlands (EMA) Amsterdam (AMS), Chambery (CMF), Edinburgh (EDI), Glasgow (GLA), Jersey (JER), Paris CDG (CDG)
Edinburgh (EDI) East Midlands (EMA)
Exeter (EXT) Barcelona (BCN), Nice (NCE) Avignon (AVN), Leeds/Bradford (LBA)
Glasgow (GLA) East Midlands (EMA), Shannon (SNN)
Inverness (INV) Southampton (SOU)
Leeds/Bradford (LBA) Exeter (EXT), Knock (NOC)
London Gatwick (LGW) Aberdeen (ABZ), Nantes (NTE)
Manchester (MAN) Waterford (WAT) Brussels (BRU)
Newcastle (NCL) Bergen (BGO)
Southampton (SOU) Barcelona (BCN), Isle Of Man (IOM), Nantes (NTE) Düsseldorf (DUS), Frankfurt (FRA), Inverness (INV), Tours (TUF)
Source: new route database, Innovata / Diio Mi

Southampton: target for expansion

Analysis of schedule data for July shows that Southampton Airport is flybe’s biggest UK base, in terms of flights, seats and ASKs. The airport’s relatively short runway has been a handicap in attracting LCCs that operate Airbus and Boeing aircraft, but is ideal for flybe’s fleet of Q400s and Embraer E-175s and E-195s. The biggest UK regional airports missing from flybe’s list of busiest airports are Bristol, Liverpool and Newcastle.

flybe's top 12 airports Weekly departing seats (destinations served)

Source: Innovata / Diio Mi for 15-21 July 2013

Regarding flybe’s future network development, the airline’s recent Analyst and Investor Presentation published on 21 June, revealed that the short-term goals for flybe’s UK network are:

  • Exit unsustainable markets
  • Focus on building defensible core bases in the UK regional market
  • Compete using convenience and frequency as flybe’s main USP (Unique Selling Proposition)
  • Compete by restoring flybe’s price competitiveness underpinned by the restructured cost base

In the medium-term, the plan is to restructure and rebalance the network into a defensible core by setting the following goals:

  • Develop European routes from core bases
  • Reduce exposure to short-term market shocks by growing advance sales
  • Rebalance the network to generate a greater proportion of leisure travel

Southampton Airport is chosen as an example of a core airport with the following objectives:

  • Use volume incentives to maximise growth at the lowest incremental cost
  • Compete for traffic which currently uses Heathrow and Gatwick
  • Capitalise on excellent road and rail access
  • Use physical constraints at the airport (which limit aircraft size) to defend
  • Build a network of top short-haul business and leisure routes to rival Heathrow and Gatwick
  • Capitalise on the convenience and simplicity – model customer experience on London City
  • Develop year round leisure flying – maximise the E195 flying during peak leisure seasons

As a result it seems clear that while flybe may not be planning to grow overall in the next few years, its route network is likely to evolve with unprofitable domestic routes likely to be increasingly replaced by new international routes.


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