Can flybe still fly?

The new CEO of flybe has wasted no time in doing what all new CEO’s at struggling companies must do; rubbishing the previous management. To be fair, he has been at pains to point out their achievements in growing the airline and floating it on the stockmarket but he makes no bones about the fact that the airline has been poorly run in recent years.

Depending on how you look at it, the flotation of flybe was a remarkable triumph. I cannot have been the only person to have been deeply sceptical about the up-beat tone of the prospectus, nor was I surprised when the airline was forced to issue the first of five profit warnings. The shares were floated at 295p and touched 49p at one point (they are a “relatively healthy” 103p at the moment).

The airline has recovered some ground under the new management through the usual cost-savings, route closures and the one-off sale of valuable slots at Gatwick. All this is fine, but it won’t bring the airline back to long-term profitability.

In an interview, Saad Hammad, the new CEO, pointed out that of 158 routes flown by flybe, 61 did not even cover their fixed costs. He also compared aircraft utilisation and hours spent flying by pilots with easyJet (for whom he worked at one stage). EasyJet fly their aircraft for more hours a day and their pilots fly an average of 813 hours a year compared to just 374 at flybe.

This is all very well but Mr Hammad surely knows he is not comparing like with like. An aircraft and crew shuttling between Southampton and Jersey will have far fewer hours in the air each day than one flying from Gatwick to Sharm el Sheikh.

Flybe is a regional carrier, not a large-scale budget carrier like easyJet – and that is the problem.

Longhaul airlines can make money, budget airlines flying high density routes can make money but regional airlines nearly always struggle. In fact, it is hard to think of any regional airlines that make money, without the active support (or subsidy) of a larger carrier who uses them as a feeder.

Flybe is a very useful airline for many people. If you want to get from one end of the country to another, they might be the only viable option. Were flybe to disappear, it is unlikely other airlines would jump in to take over all their routes. Maybe Mr Hammad has some secret recipe to make the airline profitable but he might consider using an ad campaign run by Air Inter a few years ago when it was struggling with its large French domestic network. The tagline was simple – use us, or lose us.

Airports and shopping

Some businesses might be struggling but consultants seem to be thriving. Whilst there are some who know what they are doing and understand the field they work in, there are too many who seem to think the more they complicate an issue, the cleverer they will appear.

I am just recovering from reading a tedious report on the sale of slots at Gatwick by flybe to easyJet. Lots of graphs, charts and complicated theories as to the the precise strategies of flybe, Gatwick and easyJet almost completely hide the real reason for the sale.

- Flybe has been losing money badly for several years. They have now embarked on a turn-around plan which is, almost, their last chance. Gatwick was not central to their route network and if someone is going to offer £20 million for the slots, you grab the cash with both hands.

- Flybe blamed Gatwick’s discriminatory pricing which hits smaller aircraft but other airports discriminate in a similar way. The simple fact is that flybe badly needed the cash – though obviously they could not say that.

- You might have thought that Gatwick, with its stated ambitions to be a rival to Heathrow, would actually want to keep flybe because of the domestic feeder traffic, but economics come before lofty ambition. Even ignoring the money they receive from each take off and landing, Gatwick wanted bigger aircraft because bigger aircraft have more passengers and more passengers means more business for the shops. Also, international passengers spend more than domestic passengers. Gatwick could surely have done a deal with flybe had they wanted to but their departure suits them very well – the choice between 80 passengers going to Newcastle and 180 going to Athens is a no-brainer. The airport will gain a little from increased landing fees with the bigger aircraft but it stands to gain much more from the additional retail revenue.

Simple – no graphs or pie-charts required.

Airport retail is hugely important to all travellers. Those who complain about the crowds of shops disturbing airport terminals really need to consider how much their tickets would cost without the income. No passenger is forced to shop – but we all enjoy the benefits.

And Heathrow has just announced a very interesting new benefit – free wi-fi. Once again, the press manage to miss the point. Almost every story I have read on the subject says the airport will be offering 45 minutes free wi-fi use each day. Some then pontificate about the aim of Heathrow to appear to be offering more, but they ignores the crucial part of the deal. You can actually get 90 minutes each day – all you need do is enter your Heathrow Rewards card number. Linking the free wi-fi to their shopping reward card is a very clever move. Anyone using the free wi-fi is going to be tempted to sign up to get the extra minutes – and if they sign up, the airport will have their email address and be able to hit them with lots of profitable add-ons.

Airports and shopping – the two are inextricably linked.

 

0871 – money-saving tip

 A subscriber to Inside Traveller has recently told us of frustrations with flyBe. He had to wait for 20 minutes to get through to reservations at the airline. So for future reference he suggests that you should call them on 01392 268529 (the outside-UK contact number) rather than use the advertised 0871 number that costs 10p per minute. The person he spoke to said the call centre had recently been outsourced and they had lost staff, so waiting times are longer. the lesson here is that when calling airlines that advertise 087+ and other premium numbers you should look for the “contact us from overseas” alternative number and use that to save a bit of money. It is well worth looking at www.saynoto0870.com which lists alternative numbers for many UK companies.

Congratulations flybe!

Last week marked the first anniversary of the airline’s debut on the stockmarket. The shares were floated at 295p and are now trading at 56p.

There were some (well, me at least) who felt the offer price was high and the prospectus somewhat optimistic. Unfortunately, the shares quickly began a long descent based on trading updates which were markedly different in tone to the prospectus just a few months before.

In the same period, easyJet’s shares have gone from 420p to 380p.

Who says bankers are useless and over-paid? Merrill Lynch did a fantastic job for the owners of flybe in persuading the market it was worth 295p a share. They are surely worth every penny of their substantial fee.

On the other hand, I can’t help but think flybe might find it difficult to attract any further funds from the City. 

 

 

Naughty flybe

Good to see that the ASA have taken flybe to task over one of their ads. They were advertising “free flights” for those taking out their branded credit card but only mentioned in very small print that “taxes and charges” were  extra. This is important because a proportion of this figure is simply profit for the airline, rather than any statutory charge for security or government tax.

We have said several times that, despite their carefully crafted “country bumpkin” image, flybe are every bit as sharp with advertising and extra charges as Ryanair. You need to watch them like a hawk.

Also, they really do not seem to understand the way airlines use their frequent flyer programmes to both create customer loyalty and make money on their own account. Introducing an expiration date for points earned using the wrong excuse of new accounting legislation and blocking certain popular routes for redemption show an airline that has not got to grips with how to run a frequent flyer programme.