Q1 2014/15 INTERIM MANAGEMENT STATEMENT
23-Jul-2014 Flybe reports an encouraging start to the year, in line with management expectations, as the trading performance shows the benefits of our disciplined approach across four focus areas: capacity, revenue, costs and organisation. We also continue to prepare the business for future growth.
Capacity discipline - the right aircraft on the right routes in the right numbers with improved utilisation
UK Operations
· 17.2% reduction in seat capacity to 2.5m seats (Q1 2013/14: 3.0m seats).
· 9.2% improvement in aircraft utilisation with block hours per operating aircraft increased from 7.1 hours to 7.8 hours.
Finland JV
• Reduction in the number of loss-making scheduled lines of flying as two (out of six) aircraft have been returned to lessors and in dialogue with JV partner Finnair to address performance.
Revenue discipline - growing UK revenue per seat through higher load factors and robust route selection
· 9.5% growth in passenger revenue per seat to £52.79.
· Load factor increase to 75.8%, up 9.3ppts (Q1 2013/14: 66.5%) driven by planned 3.9% reduction in passenger yield to £69.61 (Q1 2013/14: £72.46).
· The 11 new routes which were launched in Summer 2014 are performing in line with route assessment model expectations.
· Flybe brand relaunched, including new purple livery, redesigned website, new advertising campaign, the world's-first 60:60 'on time guarantee' and improved on-board experience.
· Introduction in June of Paypal as a payment alternative on Flybe.com, making it easier for customers to pay for travel in the method they want.
Cost discipline - driving efficiency by reducing costs
· 16.6% reduction in total group costs (excluding grounded aircraft and USD loan revaluation gains).
· 1.6% reduction in UK costs per seat (excluding marketing and grounded aircraft) to £51.20.
· £24m planned cost savings on track in 2014/15, taking cumulative annualised savings in the turnaround plan to £71m.
· Strategic services agreement signed with Bombardier to make Flybe's UK branded Q400 fleet one of the most operationally efficient regional fleets in the world.
· Lower aircraft ownership costs secured from the purchase of five second-hand Q400 turboprop aircraft from existing lessors for new London City operations.
· Long term solutions for nine grounded E195s being actively pursued. Maximum exposure for 2014/15 now capped at £26m as mitigation initiatives contribute to reducing ownership costs.
Organisational discipline - driving efficiency by employee engagement and operational excellence
· New employee engagement programme, "The Purple Way", and new training programme, "Flybe Loves Service", being rolled out across the business.
· MRO business unit to be retained, as a separate strategic business unit, following a detailed review and efficiency programme.
· Confirmation of long term commitment to the Training Academy in Exeter.
Flybe Finland - white label in line; in dialogue with Finnair to address scheduled flying performance
· Flybe Finland's white label business performed in line with expectations.
· However, continuing decline in the domestic Finnish passenger market resulted in continuing revenue weakness in the scheduled flying operation. That decline has more than offset the reduction in scheduled capacity, and so losses in scheduled activity continue to be unacceptable in the Finland JV. Flybe is working with its joint venture partner, Finnair, to agree the necessary actions required to address this as soon as practicable.
Growth plans under way
· 16 new routes launched for Winter 2015, including five new London City routes and extension to year round operations of six of the Birmingham summer routes. Further routes being actively considered.
· Starting in October 2014, our new Flyshuttle service will offer customers a multi-stop 'hop on and off' service between Jersey and Aberdeen with up to three flights a day via Southampton and Leeds Bradford airports.
· In June, Flybe's franchisee, Stobart Air, commenced operations from Southend Airport, flying two ATR72s in Flybe's new purple livery.
· New code share agreement with Finnair launching in August 2014, under which Finnair's code will be attached to Flybe's UK domestic flights into Manchester. Codeshare agreements under discussion with other potential airline partners to improve UK regional connectivity to the wider World outside the UK.
· Flybe Aircraft Maintenance has been awarded preferred bidder status by Airbus Military to provide Maintenance, Repair & Overhaul (MRO) services for the Royal Air Force fleet of A400M Atlas new generation airlifters at RAF Brize Norton.
Q2 2014/15 current trading remains in line with management expectations
· Flybe UK's current forward booking profile for Q2 2014/15 shows:
o Seat capacity of c2.7m seats, down by c15% vs. prior year;
o c45% of seats sold as at 14 July vs. c40% in the prior year;
o Passenger revenue per seat up by c9%.
Saad Hammad, Chief Executive Officer, said:
"Flybe's momentum continues, with an encouraging start to the year. Our focus and discipline is delivering the operational improvement in the underlying business that we demand and which is required to drive our future profitability and shareholder returns."
"We have launched a number of new routes and products, re-launched our brand and announced a number of exciting strategic developments with new partners. We have achieved a significant amount in the quarter, with substantially more to do in the months ahead."
"Our plans to address the few remaining legacy issues in the business, especially the grounded E195 aircraft and the loss making scheduled flying business in Finland, are progressing and I look forward to providing further updates in due course."
Enquiries:
Flybe Tel: +44 20 7457 2020
Saad Hammad, Chief Executive Officer
Andrew Knuckey, Chief Financial Officer
Instinctif Partners Tel: +44 20 7457 2020
Mark Garraway
Helen Tarbet
Flybe under management KPIs (including Flybe Finland)
|
|
Quarter to
|
Quarter to
|
Change
|
|
Revenue |
|
|
|
|
Passenger revenue (£m) |
138.1 |
153.6 |
(10.1) |
|
Contract flying revenue (£m) |
56.5 |
60.2 |
(6.1) |
|
Revenue from other activities (£m) |
9.2 |
15.2 |
(39.5) |
|
Total revenue under management (£m) |
203.8 |
229.0 |
(11.0) |
|
Less: Joint venture revenue (£m) |
(59.2) |
(64.8) |
(8.6) |
|
Group revenue (£m) |
144.6 |
164.2 |
(11.9) |
|
|
|
|
|
UK Operation
UK Operations comprises Flybe's UK domestic and UK to European airline operations.
KPIs
|
|
Quarter to
|
Quarter to
|
Change
|
|
Seats and passengers |
|
|
|
|
Scheduled seats (million) |
2.51 |
3.03 |
(17.2) |
|
Passengers (million) |
1.90 |
2.01 |
(5.6) |
|
Load factor (%) |
75.8 |
66.5 |
9.3 ppts |
|
|
|
|
|
|
Revenue |
|
|
|
|
Passenger revenue (£m) |
132.3 |
145.9 |
(9.3) |
|
Contract flying revenue (£m) |
3.9 |
4.2 |
(7.1) |
|
Revenue from other activities (£m) |
2.9 |
6.8 |
(57.4) |
|
139.1 |
156.9 |
(11.3) |
|
|
|
|
|
|
|
Yield |
|
|
|
|
Passenger yield (£) |
69.61 |
72.46 |
(3.9) |
|
|
|
|
|
|
Passenger revenue per seat (£) |
52.79 |
48.20 |
9.5 |
|
|
|
|
|
Revenue
Contract flying revenue was £3.9m in relation to two aircraft operating on a Brussels Airlines contract flying agreement and a third aircraft operating on agreement with Aurigny (which ceased at the end of June 2014). In the prior year, four aircraft operated on contract for Brussels Airlines.
Revenue from other activities in Q1 2013/14 was higher than Q1 2014/15 due to exceptionally high levels of charter revenue due to available surplus aircraft and crew which have since been removed from the business.
Costs
Marketing costs increased to £4.5m (Q1 2013/14: £2.2m) as a result of investment in Flybe's brand re-launch, and grounded E195 aircraft costs were £6.4m, both in line with expectations.
On a constant currency basis, Flybe UK's costs per seat for the quarter to 30 June 2014 (excluding marketing and grounded aircraft costs) decreased by 0.9% to £51.20.
Hedging
Flybe UK's current hedge books[1] are summarised below (all hedges are forward swaps).
Jet fuel
· Q2 2014/15 - 80% hedged at $962 per tonne
· H2 2014/15 - 68% hedged at $961 per tonne
· H1 2015/16 - 64% hedged at $945 per tonne
US Dollar
· Q2 2014/15 - 72% hedged at $1.53
· H2 2014/15 - 72% hedged at $1.64
· H1 2015/16 - 49% hedged at $1.68
Carbon
· Calendar year 2014 - 99% hedged at €5.62 per tonne
· Calendar year 2015 - 98% hedged at €6.78 per tonne
Flybe UK currently has a broadly neutral position in Euro income and expenditure.
KPIs
|
|
Quarter to
|
Quarter to
|
Change
|
|
|
|
|
|
|
Revenue |
|
|
|
|
Passenger revenue (£m) |
5.8 |
7.7 |
(24.7) |
|
Contract flying revenue (£m) |
52.6 |
56.0 |
(6.1) |
|
Other revenue (£m) |
0.8 |
1.1 |
(27.3) |
|
Total Flybe Finland revenue (£m) |
59.2 |
64.8 |
(8.6) |
|
|
|
|
|
|
Yield |
|
|
|
|
Passenger yield (£) |
75.00 |
84.95 |
(11.7) |
|
|
|
|
|
|
Passenger revenue per seat (£) |
30.56 |
38.05 |
(19.7) |
|
|
|
|
|
The reduction in Flybe Finland revenue on a constant currency basis was 4.6%.
Fleet
Fleet movements
In June, five Q400 turboprop aircraft were acquired from existing lessors for Flybe's London City operations, due to commence in October 2014. In Flybe Finland, two leased ATR42s were returned to lessors.
Current fleet
As at 30 June 2014, Flybe's aircraft fleet under management was as follows:
|
|
Number of seats |
Owned with debt finance or finance lease |
Operating lease |
Total |
|
|
|
|
|
|
|
Bombardier Q400 turboprop |
78 |
7 |
38 |
45 |
|
Embraer E195 regional jet |
118 |
- |
14 |
14 |
|
Embraer E175 regional jet |
88 |
7 |
4 |
11 |
|
|
|
14 |
56 |
70 |
|
|
|
|
|
|
|
ATR 72 turboprop |
68-72 |
- |
12 |
12 |
|
Embraer E190 regional jet |
100 |
- |
12 |
12 |
|
76 |
- |
2 |
2 |
|
|
|
|
- |
26 |
26 |
|
Total |
|
14 |
82 |
96 |
Of the total fleet under management of 96 aircraft, 25 are being deployed on contract flying in Finland and the UK. The average age of the fleet is 6.1 years.
The Group continues to match capacity to demand, particularly in its core UK market. As at 23 July 2014, 10 E195 aircraft were grounded, and Flybe is in active discussions with a number of airlines whereby these aircraft could be deployed under white label operations or sub-lease arrangements.