Future flybe: more Virgin or Stobart?

Flybe Heathrow

Flybe’s launch day at London Heathrow back in 2017. The airline still operates to both Edinburgh and Aberdeen, with Guernsey and Newquay flights added in 2019.

The struggles of flybe have been long documented. From acquiring the loss-making BA Connect operation at Birmingham to ordering (and retiring) E-Jets not optimised for its predominantly thin, sub-400nm network, the carrier has only made a profit in three of the past 10 years. As of 14 January, it has just secured another financial lifeline; one year since it was also on the brink and was acquired by the Connect Airways consortium. Keep an eye on our Facebook and Instagram stories for the very latest updates.

Birmingham remains top base; revenue falls as capacity cut

Source: OAG Traffic Analyser. Revenue compared with 2018.

Birmingham remains largest, but like many other bases capacity has been reduced significantly – impacting revenue. Out of flybe’s top-10 bases, only Jersey and Exeter have seen revenue increases in 2019 compared with 2018. Since Connect Airways acquired flybe, the main focus has been cutting unprofitable routes, and removing aircraft unsuited to short, thin routes. 

Jersey and Exeter buck the trend with strong unit revenue increases

Source: OAG Traffic Analyser. Revenue/pax compared with 2018.

The carrier has had some success in achieving this. Exeter and Jersey stand out with strong improvements in performance, and Amsterdam has remained relatively stable. Flybe can take slight comfort in the fact that per-passenger revenue has reduced at a lower proportional rate than the total. Still, the fact remains that as variable costs like fuel rise, the airline in its current state cannot afford any reduction in yields.

Air passenger duty costs domestic passengers £26 per trip

Source: Airlines UK – The Impact of APD on Airline Route Economics. For an average domestic route, where APD is levied on both the outbound and inbound legs, the revenue needed to cover this is around £1 million per year.

The £26 per-round trip air passenger duty (APD) on domestic flights suppresses regional demand and makes many routes unprofitable. With small aircraft and higher seat costs than low-cost rivals, UK-based regional airlines like flybe are the worst affected. At the time of writing, the government has just launched a consultation into the future of APD, and agreed to extend repayments of flybe’s £100m tax bill by three years.

Virgin Atlantic/Delta want hub-and-spoke, Stobart wants regional connectivity 

The ownership of flybe provides the answer to some of the challenges it must face. Connect Airways, the airline’s owner, is made up of Virgin Atlantic (30%), Stobart Group (30%) and Cyrus Capital (40%). Virgin Atlantic aims to create a hub-and-spoke operation from Heathrow, and a similar ‘hub of the north’ from Manchester, to feed its long-haul JV with Delta. 

Source: Virgin Atlantic. Flights longer than two hours (east of Germany from Heathrow) are not suited to flybe’s Dash 8-400 fleet, and rivals operate much larger aircraft on all these short haul, primary cities from Heathrow. This gives them better flexibility to reduce fares as their cost per-passenger is lower on flights longer than one hour.

In 2019, the airline announced 49 short-haul routes it wishes to serve from an expanded Heathrow hub. However, Heathrow is currently only flybe’s 12th largest base by revenue, with expansion delayed by another year and the existing Dash-8-400 fleet not suited for flights over 2h. 

Meanwhile, Stobart Group owns/has strategic partnerships with several UK regional airports including Carlisle, London Southend, and Teeside. flybe recently announced a significant point-to-point expansion at Southend for S20, with Stobart likely behind this decision.

Either way, a new aircraft order seems likely in the five-to-ten-year term. Average fleet age is over 11 years for its Dash-8s, and the carrier would need a new type to serve longer European routes from Heathrow/Manchester.

To the future: the US regional model?

US regional airlines are mainly hub-and-spoke feeders, and thrive through franchise and revenue-sharing agreements with their mainline partners. This seems to be Virgin Atlantic’s rationale. However, smaller UK airports are heavily reliant on P2P networks established by flybe; they’re simply vital for communities and stakeholders like Stobart. Throw into the mix long-term government considerations of state aid, environmental targets, and tax revenue from APD – this is the dilemma government and Connect Airways will have to resolve.


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