20 JANUARY 2020
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FLYBE – What went wrong?
The following is from an observer of the British regional airline scene who would prefer to be anonymous. See also COMMENT and Flybe – further thoughts.
Willie Walsh’s rather ‘holier than thou’ comments regarding the Flybe situation, which he asserted was down entirely to their very poor management of regional air services, is far from the truth. Historically their performance was bad. Walsh continued the policy of keeping away, with the exception of Leeds-Bradford, which in 2018 lost one third of its traffic and is now probably half of Newquay (the 2019 figures will be published in mid-February).
It’s worth remembering how the present Flybe actually came into existence, originally Jersey European Airways (JEA), becoming Flybe in 2002.
British Airways, after years of continuous and heavy losses on their regional domestic services, finally decided that same year to purchase the British Regional Airlines group plc, which was an independent publicly listed company having severed all ties with BMI and the Airlines of Britain Group in 1997. It merged with BA-owned Brymon Airways. Profits were around £10m and £6m respectively.
With the joining of these two broadly similar carriers, significant savings on overheads would be made, giving an annual profit of around £20m. To this they later added the remainder of BA’s non-trunk domestic and some European routes.
Within two years of BA trying once more to operate short-haul and domestic services, this projected profit of £20m had somehow become a loss of £40m.
In some desperation, after stripping out the LCY-based City Express (subsequently BA Cityflyer with its own AOC), BA approached Flybe (which, after BA’s purchase of BRAL/Manx, had become the country’s largest regional operation) and basically begged them to take the regional operation off their hands.
Variously publicly described as a ‘merger’, or a ‘sale to Flybe’, in fact BA offered a huge cash incentive, rumoured to be more than £200m, to enable the deal to be concluded.
With all that money in the bank, Jim French, long-time Flybe CEO, then rushed off and purchased a fleet of Embraer E195s, sexy 118 seat jets non-compliant with London City Airport and the wrong aircraft for his routes. Flybe took on the smaller Emb 175 too, this aircraft also lacking a LCY capability. He fortunately retained his de Havilland Canada Q400s.
The acquisition of the Embraer's was the beginning of Flybe’s downfall but not before an IPO.
On 10 December 2010, Flybe floated on the London Stock Exchange, the issue share price set at 295p, valuing the company at approximately £215 million.
In 2013, French was replaced by Saad Hammad, short-term at easyJet, with Simon Laffin, ex-Safeway, as chairman. By October 2016, Hammad was shown the door and Laffin then appointed Christine Ourmières-Widener, ex-Air France, previously ineffective at CityJet.
By the middle of 2019, the airline was in crisis, sold to the Connect Airlines consortium, one of several would-be saviours. A figure of £2.4m has been quoted, not a great sum. Having burnt its fingers with Little Red, Virgin Atlantic did not immediately re-brand the airline. Virgin Connect was to emerge as the preferred new name of the to be reinvigorated company. But not yet. Why?
Mark Anderson, ex-Virgin Holidays, has been in the job just over six months and yet to prove himself in sorting out a very complex situation, now with a fleet of 54 de Havilland Q400s and down to the last nine Embraers. Flybe’s numbers are substantial. It directly employs around 2,400 staff and last year carried 8m passengers. In my opinion, it is saveable with patience.
On the overall agreement reached on Tuesday to keep Flybe operating, I’ve listened with mounting frustration to various ‘phone-ins’ with so many virtuous contributors claiming that no-one should be using air services domestically, with trains being a far more acceptable means of transport.
That might well be true, but there is no apparent recognition of the fact that literally hundreds of thousands of people live in communities without any access to decent rail services, or the islands which form part of the British Isles, and for whom no realistic alternative means of transport exists for so many business, social, and medical reasons.
This applies even if one completely discounts the huge leisure and tourist traffic which is vital to the economies of many of these areas. The only way to get from the Isle of Anglesey to Cardiff in any sensible time is by Flybe. Likewise London City Airport to Belfast City.
Take for example the Isle of Man. Every weekday morning, around 40 people requiring major medical treatments will have been scheduled to fly from the island at government expense, to have treatment or consultations in hospitals in the Merseyside area. Almost all would be back home that evening.
The alternative is a 3hr 30min (sometimes very rough) ferry crossing to Heysham, followed by a 3hr coach transfer to Liverpool with an arrival time of around 16:00, meaning appointments would have to be scheduled for the following day, with the complications that would bring.
Flybe accounts for 93% of all airline services at Southampton Airport. There are many other regional airports that rely on Flybe for the majority of services (see Flybe – further thoughts).
On the other side of the coin, Flybe competes with British Airways on the lucrative and busy Aberdeen and Edinburgh routes to Heathrow. Has Walsh thought it out? Does he want easyJet taking over the flights? BA Cityflyer from LCY would have a monopoly on certain routes. Is that good for the traveller?
For whatever reasons Flybe launched its Heathrow – Guernsey service very low key last spring, again with Q400 from T3. Will that continue? It competes with Aurigny, owned by the States of Guernsey, a nationalised airline who fly to Gatwick and Stansted. Industry rumour is that Flybe will introduce Heathrow – Dusseldorf using the Newquay slots, a somewhat odd choice, turboprop v BA A320 and Lufthansa’s Eurowings. Clearly the independent Channel Island airline Blue Islands is also carefully monitoring the situation. It operates certain routes on behalf of Flybe.
Also worth considering is that the 78-seat Q400 uses the same slots as a 500-seat A380, although admittedly its runway lingering time is much shorter. Heathrow Airport Ltd, to its credit, is an advocate of regional services.
Walsh is not the boss of British Airways, as depicted by much of the media, but the outgoing chief executive of a holding company for a number of airlines. You would not expect the Lufthansa Group chairman to rant about Austrian Airlines, which they own.
The ‘state subsidy' to Flybe, as I’ve heard it described many times, is merely an agreement to defer payment of an admittedly very significant sum owed for Air Passenger Duty (APD). Many businesses have ‘discussions’ with HM Revenue and Customs when they have a cash shortfall, not just airlines. The Treasury, often the major creditor, then makes a payment decision.
It is surely for the government to take another look at the iniquity of the ‘double payment’ of APD on domestic routes, for which so many have been calling. No Brexit rules to break at the end of the month.
Travellers on the domestic services of BA, easyJet, Ryanair, and others would benefit by any changes as much as Flybe passengers. It’s hard to understand why these airlines should be against this, other than the opportunity to leap upon a convenient passing bandwagon.
Comparison with the government’s failure to act to save Monarch or Thomas Cook is also irrelevant. Very sad as it may have been to the staff and passengers involved in these collapses, two holiday airlines operating leisure routes cannot have the same significance to the UK as an airline providing vital services to so many parts of the country isolated by the sea, lack of rail services, poor infrastructure or sheer distance. Most Flybe passengers are protected against financial loss by direct bookings paid by credit card.
The country needs Flybe. And Flybe needs the country!
All comments are filtered to exclude any excesses but the Editor does not have to agree with what is being said. 100 words maximum
Neil Munro, HAYLING ISLAND
Bring back BIA. We seemed to get round the same routes without all these problems. Perhaps the Cazor wealth was a great help or because they were gentlemen.
Barry Humphreys, North Holmwood, Surrey, UK
UK airlines have lobbied for years for changes to the APD tax, especially the removal of the domestic double tax anomaly and the way Premium Economy is treated. The Treasury has totally ignored them, not helped by some carriers' preference for short-term commercial gain rather than maintaining an industry united position. The same is happening again. The airlines should seize the opportunity and work together to achieve at least some improvement to the APD anomalies. It is in their longer-term interests to do so.
Brad Burgess, UK
How can the anonymous writer claim on the one hand that it is wrong to assert that Flybe suffered from bad management and at the same time criticise the introduction of the e jets? If the e jets were the wrong move than that is surely an example of bad management. I agree that the Country needs regional air services but that is not the same as needing flybe.