Flybe shares slump 20% as passenger revenue falls

Shares in Flybe Group slumped more than 20% yesterday after the British budget airline said it would break even before tax in its financial year, ending in March, after a fall in third-quarter passenger revenue.

The embattled carrier posted its first pre-tax profit in four years in the year ending March 2014, helped by brutal cost cuts that involved giving up airport slots, slashing jobs, exiting unprofitable flight routes and grounding surplus fleet.

But Flybe has since been on rocky ground, swinging back to a loss in the first half of its current fiscal year due to one-off costs and a charge related to its exit from its Finland joint venture.

The full-year forecast followed a 3.8% drop in passenger revenue in the final three months of 2014 to £126.8m on the back of competition on some new London City airport routes.

“We believe this competitive pressure will extend the period of time these routes take to reach maturity and deliver the full contribution we expect,” Flybe said.

Liberum analyst Gerald Khoo said this forecast implied a £9m cut to profit estimates. He cut his target price on the stock to 140p from 180p, but kept his “buy” rating. Yesterday, Flybe shares were down 22% at 70.2p after touching 67p, the lowest since November 2013.

While European routes have seen increased competition, forcing players to undercut each other on pricing, lower fuel costs have come as some reprieve.

Regional airlines have stepped up hedging as they look to lock in huge savings, betting that a slide in crude oil to six-year lows may peter out near $40 a barrel.

Flybe said it would not see benefits from lower fuel prices until 2016-17, due to its hedging strategy.


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