Flybe is in urgent need of a new strategy

By M.R.

DESPITE PLYING European skies for nearly four decades, Flybe, a regional airline based in Exeter, Britain, has never suffered a major safety-related incident. Its pilots and technicians deserve much praise for this stellar safety record. Sadly, investors in the airline have not been looked after nearly as well. Those who bought shares in the firm when it listed on the London Stock Exchange in 2010 and still have them are nursing a massive 97% loss in terms of their value. Recent profit warnings have compelled Flybe’s board to put it up for sale–nine months after spurning a takeover attempt.

It would be unfair to place all the blame on management. Rising oil prices, over-capacity in Europe and sky-high compensation pay-outs under European Union law have hit profits hard. There are fundamental concerns about the viability of the regional-airline model, whereby passengers pay a premium to fly short distances in small planes. The sector has been hammered by the rise of Europe’s more efficient budget carriers. Starting fares of £25 ($32) for Flybe’s 200-mile hop from Newquay to Birmingham can hardly be called excessive. But Wizz Air, an ultra-low-cost airline from Hungary, carries passengers ten times the distance for a few pounds less on its route from London to Kutaisi in Georgia, a distance of over 2,000 miles. Such absurdly low ticket prices are changing travel habits. Many now see regional flights as a frivolous luxury. Replacing them with slightly longer journeys by road or rail may be good for both the wallet and the environment.

Flybe can pull out of the tailspin, but not by itself. This year it rejected a takeover attempt by Stobart Group, the owner of London Southend Airport and Stobart Air, an Irish regional airline. But friends can help in other ways too. Flybe should follow the example of Ireland’s CityJet and Estonia’s Nordica by trimming its own network and leasing out its aircraft instead. But what this lacks in excitement is made up for in reliable income–typically from hub airlines whose resources are tied up with busier routes. Borders are no barrier here. Air Nostrum, a Spanish regional airline, recently leased out two of its planes to help re-launch Syphax Airlines in Tunisia.

Flybe’s managers may be proud that the carrier is Europe’s largest regional airline. But earning money by transporting people short distances in uneconomical planes is a risky strategy in a well-connected continent. To ensure long-term survival, they should focus the carrier’s efforts on routes where geography or public subsidies give them an edge. Any of Flybe’s 78 planes that can neither be deployed on these services, nor lent to external partners, should be withdrawn from service–and quickly.