Flybe has been a stable and dependable carrier in the UK regional market throughout its 40- year history. However, recently the prominent player in the aviation industry has seen consecutive years of losses. This is mainly due to the pressures of Brexit, rising fuel prices and an expensive order of 35 Embraer E175 jets from 2010 and 14 Embraer E195 jets from 2005 which has only worsened their already dire financial situation. So, where did Flybe come from? And how did their history lead to the situation they find themselves in today?
Well, they started off as a small carrier known as Jersey European Airlines, who commenced operations in November 1979. It established routes to various destinations within the UK, but was then sold onto Walker Steel group in November 1983 by a former majority investor, John Habin. Walker Steel also owned another airline, named Spacegrand Aviation and they were run separately until 1985, where they were unified under the Jersey European title. The airline then became known as British European in 2000 and then Flybe in 2002. During this time period the airline operated a wide range of aircraft from the BAe-146 to the CRJ200 to the EMB-110 Bandeirante.
Nonetheless, the events of the last 10-15 years have really been the true driving force of Flybe’s current position. A good place to begin this recap is at the first major point where it became obvious Flybe was beginning to expand. This arguably begins with the takeover of BA connect, British airways’ low cost regional subsidiary (other than BA Connect’s operations out of London City, which have evolved to become what is today known as BA Cityflyer) in November 2006. The next major expansion for the company were orders: beginning in 1999 with an order of 4 Dash 8 Q400’s, Flybe continued to order Dash 8’s in 2003, 2005 and 2007 and the leasing of 24 of Republic Airways’ Q400’s in 2014 brought Flybe’s fleet of Dash 8’s to 60, cementing Flybe’s status as the world’s largest operator of the Canadian turboprop.
However, this, along with the order mentioned earlier of Embraer E jets, spelled the beginning of a serious issue for Flybe and, although attaining the title of largest Regional Airline in Europe, and an increase in passenger numbers virtually every year, Flybe began to register losses. In 2012, 2013, 2015 and 2017, Flybe registered losses and although they turned a profit in the years in between, namely 2014 and 2016, overall the company lost an astronomical amount of money: £95.8million which, on top of rising fuel costs, lack of investment due to Brexit uncertainty, and the fall of the pound against the dollar (Flybe’s costs are in dollars, whereas earnings are in pounds) has led to a situation that the Flybe board deemed unrecoverable without external help. In addition, after the franchise agreement between Loganair and Flybe terminated in October 2017, Flybe signed a new partnership with Eastern Airways and began to compete against Loganair on flights from mainland Scotland to some of its many surrounding islands, such as Sumburgh and Stornoway. However, the lack of demand on these flights made nonviable for multiple carriers to compete on these routes. Therefore, by the time that Flybe decided to pull the plug on these failing routes in February 2018, after only 6 months, the airline had lost millions.
Adding to the worsening situation was the order of Embraer ERJ’s that still plagued Flybe, which had been trying to offload many of them since their 2018 fleet review. This review decided that the best option would be to offload all E195’s and most of the E175’s whilst keeping the Dash 8’s as the core of the fleet and a few E175’s for higher demand routes. Now, only 6 of the airline’s 14 original E195 orders remain in service, with the rest returned to their lessor and the remaining 6 scheduled to leave the fleet by the end of the 2020 financial year. The E175 order for 35 E-jets at a price of £850 million, was reduced to 15 in September 2014, with 4 other being deferred. Finally, even their workhorse, the Dash 8 received cuts before the review, with 6 aircraft retiring in 2017 due to £20 million of losses the previous year.
At this point, we will turn our attention to the events of November 2018 onwards, as this is when the financial issues were seriously acknowledged. In November 2018, Flybe issued a profit warning and by mid-November had been listed for sale. A new aircraft consortium, named Connect Airways, formed by Virgin Atlantic and Stobart Air was setup in order to rescue Flybe via a buyout. The measly sum of the buyout of £2.2 million, in comparison to a market value of Flybe that was once over £250 million was quickly accepted and although initially there was significant resistance from many of Flybe’s shareholders, this was quickly overruled by the Flybe board, partly due to an improved offer that included the purchase of Flybe’s shares for roughly £2.8 million and an immediate loan of £10 million to help support Flybe’s operations. Chief Executive of the airline at the time, Christine Ourmiéres-Widener defended the stance taken by saying ‘we understand the frustration of our shareholders but we had a duty to consider the interests of many other stakeholders’ she also cited the new deal as ‘the only one that will secure our future’. The CEO elaborated further explaining that ‘the only thing I can say is that by taking this decision we’ve saved 2,500 jobs and 1,400 pensions.'
So, although Flybe now seems to be safe due to the injected capital and support that comes from being in a consortium including a powerhouse such as Virgin Atlantic, the airline’s future is still largely unknown. However, Connect Airways has already revealed some of its plans: primarily, it intends to integrate Flybe into Richard Branson’s Virgin Atlantic brand, with the key focus for the major airline being the ability to link smaller communities with their main hubs in London and Manchester. In addition, they aim to boost Stobart Air by improving connections from Southend and Carlisle airports which, are both owned by the parent company of Stobart Air, the Stobart Group. However, the future of many of Flybe’s employees is completely unknown: they weren’t consulted before the takeover and, many are worried that jobs will be cut or moved to areas convenient for Virgin Atlantic’s operations, such as their HQ in Crawley, south of Gatwick.
But, one final question remains: who is to blame for the seemingly major blunders that have occurred at Flybe over the past few years? Although we cannot of course provide information from within the company, it seems that Flybe’s massive fleet expansion which has certainly proven too sudden and ill-suited to Flybe’s business model has had a major impact and along with bad decisions made regarding operations in Scotland has helped to cripple the airline. However, a large piece of the blame can be fairly pointed at the economic climate: the poor exchange rate of the pound against the dollar, has played a large role and this has only been exaggerated by uncertainties caused by Brexit. This has formed a brutal cocktail of economic challenges, which, even without the Brexit factor has forced losses in seemingly stable market leaders such as the Lufthansa Group. Click here to read more about the negative results from the German airline group.
In conclusion, although Flybe has had a major scare over the last few months, and, at times it
seemed it may have followed the path laid by one of its regional counterparts, Flybmi, which went bust in February this year, Flybe has been successfully rescued and, although the
future is largely unknown, there is no reason why Flybe cannot recover to provide another
40 years of stable service across the UK and Europe.