Departure lounge: Flybe

CORONAVIRUS takes its toll on European businesses, as UK airline Flybe goes to the wall.

UK REGIONAL AIRLINE FLYBE is to be liquidated as the relentless spread of the coronavirus in Europe hammers the final nail into the operator’s casket.

The liquidators moved in to Flybe’s headquarters today in Exeter, England, to start the wind-down of the regional airline that operates more than 40 aircraft and employs 2,000 people in the UK.

The news breaks just as the UK reports its first official coronavirus death, a woman in her seventies.

The airline had already been in trouble, struggling with a fleet that was too large for the airline’s capacity in the UK regional and European short-haul sector, and failing to secure GBP100 million of government funding in January. With airports and aircraft in the UK half-full, the spread of the virus sounded the airline’s death knell. Last-ditch crisis talks with stakeholders and the UK government failed to secure the company’s future, and the liquidators moved in today, leaving hundreds of Flybe passengers stranded in the UK and across Europe.

The airline was taken over in 2018 – for a mere GBP2 million- by a consortium lead by Richard Branson’s Virgin Atlantic group, in association with a private equity house. But the buyers could never agree a strategy for the struggling carrier.

Farewell, Failed Flag

Flybe operated about 40% of regional UK flights, so it was particularly exposed to anything that went wrong in the domestic market. In addition to coronavirus slamming passenger numbers, a series of storms and prolonged wet weather over the English winter negatively impacted the airline’s capacity. Sluggish trading conditions associated with Brexit, the UK’s leaving the European political union, also contributed to the airline’s demise, along with a weaker Sterling making the cost of its cross-border operations more costly.

A long term issue at Flybe was the size of its fleet. Having splured nearly a billion pounds on 35 Embraer 175 jets, to boost its expansion into Western Europe, the airline ended up operating routes simply to utilize the aircraft. Having over-invested in a fleet that was too large for its needs, the airline was saddled with insufficient passenger spend and a depreciating asset base.

Finally the Virgin-led buy-out group that took ownership of the airline in 2018 was distracted by irreconcilable differences of business strategy. The low price tag reflected the problems that were embedded in the company’s bottom line, and Flybe bosses failed to secure a UK government bail-out in January.

The arrival and rapid spread of coronavirus in Europe, via Italy which was a major route for the airline, was the final nail in the coffin. More than 2,000 jobs in the UK are at risk. Loganair, a regional operator based in Scotland, has snapped up most of Flybe’s routes in and out of Scotland.

MATTHEW FEARGRIEVE is an aviation consultant and investment manager. You can read more of his blogs here:

Matthew Feargrieve

Published by Matthew Feargrieve

Matthew Feargrieve is an investment management consultant with more than twenty years' experience of advising managers of investment funds. https://medium.com/@matthewfeargrieve Find out more about Matthew Feargrieve in the links below.

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