May 23, 2013
U.K. regional airline Flybe is making further structural changes to fund its financial turn-around by selling its entire slot portfolio at London Gatwick Airport and deferring about half of its outstanding order for Embraer 175s.
Flybe has been trying to find a market niche combining aspects of regional operations with a low-fare business model, but has found it tougher than expected to gain traction.
The carrier’s restructuring began last year when it announced, among other things, a 22% cut in staff, and earlier this year the airline’s pilots agreed to wage cuts of up to 5% in return for reduced work hours.
Flybe now is selling of all 25 slot pairs it holds at Gatwick to EasyJet. The transfer will become effective by the end of March 2014 and is affecting the seven routes Flybe is serving from the airport. Chairman and CEO Jim French says that the routes have become unsustainable because of the increase in charges at the airport and the U.K. air passenger duty. “No business can swallow cost increases of more than 100% over five years and Flybe simply cannot bear such punitive rises,“ he says.
“When you add to these cost increases the government’s policy of charging air passenger duty on both legs of a domestic flight, I’m afraid it’s inevitable that high frequency services from the UK’s regions will be squeezed out of Gatwick, as they have been from [London] Heathrow [Airport],” French adds.
The sale, if completed, will raise £20 million ($30 million) for Flybe. According to the airline, £7.5 million will be paid on the day FlyBe’s shareholders approve the deal, another £10.0 million in November after the summer slots are exchanged and the final £2.5 million in June 2014 after the winter slots are exchanged.
Flybe also is shifting deliveries of 16 E-175s that were scheduled to arrive in 2014 and 2015 by at least three years. The first of those aircraft are now to be delivered in 2017.
Flybe ordered 35 E-175s at the 2010 Farnborough air show. The deal also included options for 65 aircraft and purchase rights for another 40.
Flybe’s restructuring is due, in part, to a contraction in Europe’s regional market. According to the European Regions Airline Association, demand in the first quarter was down 10%; member airlines reduced their capacity 13% in the same period.