In a trading statement, UK airline Flybe has issued a profit warning for its estimated performance for the fourth quarter ending March 31, 2017. The airline said that the period has been “characterised by weak demand in an uncertain consumer environment, together with price competition arising from overcapacity amongst airlines and sharpened price activity from rail operators. Weather related and operational cancellations, as well as industrial action mainly by French air traffic controllers also impacted revenue.”
Although Flybe said that it responded to these challenges by taking further action on cost and reducing its capacity by slowing its year-on-year seat capacity growth further to 10% (Q3: 12.7%), load factor fell by around 1.4 percentage points (ppts) year-on-year in the final quarter, which was an improvement compared to the previous quarter's 1.7 ppts reduction. Passenger yield rose by 2.9% in Q4 (Q3: 2.8%), boosting estimated passenger revenue by 9.8% in the final quarter (Q3: 13.5%).
Flybe is planning a major upgrade to its core systems, which it says will significantly improve the customer experience and allow greater ecommerce activities. As a result, a full review of software assets and IT contracts is being conducted which is expected to result in additional cost and non-cash write downs that could impact profit by around £5m to £10m in the current financial year. Excluding this, adjusted profit before tax for the year ended 31 March 2017 is expected to be a small loss, the airline said.
Flybe has taken delivery of nine Q400 aircraft in the year, arising from the legacy aircraft contract commitments. “We therefore expect the peak size of the fleet to be reached next month with a total of 85 aircraft. As previously announced, Flybe has informed lessors that all six end-of-lease aircraft will be returned in the second half of 2017/18. This will lead to the fleet reducing in size.”
Total cash balance remains healthy and Flybe expects net debt to be around £75m at the end of the year.
The airline reports summer UK trading to-date to be in line with its expectations: a 3% increase in capacity versus prior year as the fleet size peaks; 18% of capacity has already been sold, in line with prior year; 6% increase in yield, helped by the timing of Easter; and an 11% increase in revenue.
"I continue to be very excited about the opportunities in Flybe, especially as we are now able for the first time to take control of our fleet size to reduce overcapacity,” says Christine Ourmieres-Widener, Chief Executive. “Flybe is increasingly a digitally enabled business, with 80% of bookings already being made via our website. To seize this opportunity, we must first rebuild some of our core systems and this is now starting. We shall continue to reduce costs, work with our partners to improve efficiency and stop unprofitable flying.”
Shares in Flybe fell 12% on the news issued yesterday.