Tough times ahead for Britain's budget airline Flybe as shares tumbled today after it revealed lower passenger numbers in the third quarter of last year and would break even before tax in its financial year ending in March 2015.
The ailing airline posted its first pretax profit in four years in the year ending March 2014, made possible by heavy cost cutting measures - including relinquishing airport slots, cutting jobs, axing unprofitable flight routes and a grounding of a number of aircraft in its fleet.
The full-year forecast announced today, Monday, follows a drop of 3.8% drop in passenger revenue in the final three months of 2014 to £126.8 million pounds, citing commercial pressure. "We believe that this competitive pressure will extend the period of time that these routes take to reach maturity and deliver the full contribution we expect," Flybe said in a statement.
FlyBe said excluding costs relating to grounded Embraer E195 aircraft and the impact of some loan revaluations, it was expected to break even before tax this fiscal year. According to expects in the financial markets, this forecast indicated an estimated reduction of almost £9 million to profits, prompting many to off load their shares in the struggling airline.
As we publish the shares are down some 22.23% at 69.99p and show no signs of recovery for the moment.
Hopes had been pinned on some new routes from London City Airport to bring in a larger revenue slice, however these have taken longer to establish than first envisioned. Also the airline had expected to offload a number of its surplus Embraer E-195 aircraft in a shorter time period than currently experiencing.
Many of FlyBe's European routes have witnessed increased competition, forcing fare reductions and as the airline, like most in the business, hedges regarding fuel prices that have not seen the benefit currently of the fall in crude oil prices. FlyBe said it would not expect to see significant benefits from the new lower fuel prices until 2016/17.
This however could be a boon time for investors with some surplice funds, this new low share price could be an attractive proposition to get involved in the airline world. If FlyBe can shift those excess Embraer aircraft and cut one or two routes where capacity outstrips demand by over 50% then they are positioned in an enviable position.
J Shaw