Europe’s largest regional airline is bought for the price of a West London flat

By M.R. | EDINBURGH

IF A GOOD compromise is one where all parties are left dissatisfied, this week’s bailout of Flybe by Connect Airways—a consortium led by Virgin Atlantic, Britain’s second-largest airline—must be a very good deal indeed. Bosses of the regional airline, which is Europe’s largest, have the ignominy of selling a company once worth a quarter of a billion pounds for just £2.8m ($3.6m). Investors will be paid just 1p for shares they might have purchased for £3.41 when the airline was listed on the London Stock Exchange eight years ago. And the new investors—including Stobart Group, which owns an Irish regional airline—have inherited £82m of debt and relatively few assets for their trouble.

Regional airlines such as Flybe specialise in flying relatively short hops between provincial airports. Thin levels of demand for these routes means they are best suited to small planes. No other regional airline in Europe rivals the size of Flybe’s 69-strong fleet of such aircraft. Its route network offers the only option for speedy, non-stop travel between dozens of less popular pairs of cities in Britain and continental Europe.

Most of the British airports from which Flybe operates are increasing their traffic at a brisk rate. That is a testament to a newfound appetite for local gateways over congested hubs in London that take much longer to travel through. Yet these regional airports owe their success mainly to low-cost carriers and full-service hub airlines based overseas, both of which use larger aircraft to drive down ticket prices. As a result the opportunities for deploying smaller planes in Europe profitably are becoming fewer in number. Flybe’s problems stem from its reluctance to shrink and focus on the most profitable niche markets.

Emergency loans from the new investors will give Flybe’s managers one more roll of the dice. As well as feeding traffic into Virgin Atlantic’s long-haul bases (London, Manchester, Belfast and Glasgow), they can now rejig Flybe’s network to focus on Paris and Amsterdam (the two hub cities of Air France-KLM, which is buying 31% of Virgin Atlantic). They can also streamline its fleet by co-operating more closely with Stobart Air, the Irish regional airline owned by Stobart Group. Virgin, Stobart and Air France all had pre-existing partnerships with Flybe. Their willingness to rescue the company says more about their aspirations than about Flybe’s prospects on its own.