What went wrong with Flybe and what happens next?

Regional airline Flybe has been a solidly performing carrier in its 40-year history, but this week shares nosedived by 90 per cent as a consortium led by Virgin Atlantic swooped in with a cut-price offer to buy the Exeter-based firm, which had recently begun to stall.

It is now about to undergo a radical makeover.

Here are the key questions:

Just remind us about Flybe, and its current problems?

The carrier began life as Jersey European in 1979, and has built up a busy network of services serving the UK, Ireland and continental Europe.

But there have been some serious management blunders over the years. In September 2017, Flybe decided to take on the Scottish airline, Loganair, on key links to the Northern and Western Isles. By the time Flybe threw in the towel in February 2018, both airlines had lost millions.

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Before that, a failed IT systems upgrade cost Flybe millions more. The carrier is also suffering from Brexit uncertainty, which is damaging consumer and business confidence, and weakening the pound.

While Flybe earns revenue mainly in sterling, its costs are in dollars and euros.

Two months after Flybe put itself up for sale, The Independent believes it is now losing money at a rate of £7,000 an hour.

Why is it so tough?

Everything is against the UK regional airline. Air Passenger Duty adds £26 to the cost of a domestic return ticket. Many routes can be substituted by road or rail. And as soon as the airline creates a market, one of the big boys comes in with bigger, faster planes that can offer cheaper fares. Looking at a route such as Edinburgh to City of Derry in Northern Ireland – that is natural Flybe territory, but it’s been captured by Ryanair.

Who is coming to the rescue? 

The loss-making regional airline is to be bailed out by a consortium of three parties, each with their own aims. Virgin Atlantic has a 30 per cent stake in the venture, and wants to feed into the Heathrow and Manchester hubs for its long-haul operations, as well as rebranding the airline; Virgin Atlantic is much more memorable than Flybe. Sir Richard Branson’s airline will more than double Its fleet, with 78 Flybe aircraft to be repainted. 

Stobart Group – whose Irish-based airline, Stobart Air, already operates some of its flights under the Flybe brand – wants to boost flying from the two airports it owns. 

And a hedge fund, Cyrus Capital Partners, has the remaining 40 per cent share, which it will presumably sell if and when the value of the airline increases. 

The parlous state of Flybe is revealed in the purchase price of just £2.2m – compared with a one-time market capitalisation of £250m.

What will it mean for staff?

No-one knows. Pilots say they weren’t consulted. The HQ staff in Exeter will be worried Virgin Atlantic may cut head count at the Devon airport and move some jobs to its base in Crawley, just south of Gatwick. 

And passengers?

At present, all operations continue as normal.

While Virgin Atlantic (short-haul) is promising enhanced customer service, there are no promises on routes. The buyers will be looking closely at every link, assessing whether planes, pilots and cabin crew could be more profitably deployed elsewhere. 

Changes could take effect as soon as the end of March, when the summer schedules begin. 

Looking at the route networks, links from Edinburgh, Glasgow and Aberdeen to the southern half of England and to Belfast City in Northern Ireland look secure, and likewise Exeter and Southampton to the north and west will probably survive. But East Midlands aircraft could be re-directed to Manchester to boost frequency there.

Internationally, feeds to Amsterdam and Paris are likely to increase ahead of the Air France-KLM buy-in to Virgin Atlantic, which will see them taking 30 per cent of the airline.

Southend is likely to benefit from new aircraft and an extended European and domestic network. But some of Flybe’s non-core routes – such as Cardiff to Milan, Doncaster to Alicante and Leeds Bradford to Dusseldorf – may not survive a cull if the new owners continue the current “shrink-to-success” strategy.

What about a new fleet?

It is most unlikely anything will change in the near future, beyond Flybe continuing to return Embraer jets and standardise around the Bombardier Q400 aircraft.

In time, it will depend on what path Virgin Atlantic takes with the new airline – it is possible Airbus or Boeing jets could be deployed on some routes.

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