Flybe: What went wrong with the airline and what happens next?

Regional airline Flybe has been a solidly performing carrier in its 40-year history. But faced with heavy losses and running out of cash, it appealed for financial rescue.

The Exeter-based airline is now about to undergo a radical makeover. Here are the key questions:

Just remind us about Flybe, and its current problems?

The carrier began life as Jersey European in 1979, and has built up a busy network of services serving the UK, Ireland and continental Europe.

But since it floated in 2010, Flybe has faced a series of problems, some of its own making.

A huge order that year for 35 Embraer jets proved to be an expensive burden, and the airline has been trying to offload them.

After that, a failed IT systems upgrade cost Flybe millions.

And in 2017, Flybe took on the Scottish airline, Loganair, on key links to the Northern and Western Isles. By the time Flybe threw in the towel in February 2018, both airlines had lost millions.

The carrier is also suffering from Brexit uncertainty, which is damaging consumer and business confidence, and weakening the pound.

While Flybe earns revenue mainly in sterling, its costs are in dollars and euros.

Two months after Flybe put itself up for sale, The Independent believes it is now losing money at a rate of £7,000 an hour.

Why is it so tough?

UK regional airlines face a range of challenges. Air Passenger Duty adds £26 to the cost of a domestic return ticket, which puts flying at an instant disadvantage compared with road or rail.

While “dynamic pricing” works well to airline increase revenue when there is no realistic alternative to flying, responding to high demand by pushing up fares is less effective when there are terrestrial options.

There is also the unfortunate reality that as soon as the airline creates a sizeable market, larger carriers come in with bigger, faster planes that can offer cheaper fares. Edinburgh to City of Derry in Northern Ireland is a route that should be natural Flybe territory, but it has been captured instead by Ryanair.

Similarly, Bristol to Newcastle is now an easyJet monopoly.

Flybe has abandoned flights from Jersey to Gatwick, formerly a key route, because of competition from British Airways and easyJet.

The parlous state of Flybe is revealed in the sale price of just £2.2m – compared with a one-time market capitalisation of £250m.

Who is coming to the rescue?

The loss-making regional airline is to be bailed out by a consortium of three parties, each with their own aims.

Virgin Atlantic has a 30 per cent stake in the venture, and wants to feed into the Heathrow and Manchester hubs for its long-haul operations. It will also rebrand Flybe as Virgin Atlantic. It is a more robust brand than Flybe, which has existed only since 2002.

Sir Richard Branson’s airline will more than double Its fleet, with 78 Flybe aircraft to be repainted.

Stobart Group – whose Irish-based airline, Stobart Air, already operates some of its flights under the Flybe brand – wants to boost flying from the two airports it owns, Southend and Carlisle.

And a hedge fund, Cyrus Capital Partners, has the remaining 40 per cent share, which it will presumably sell if and when the value of the airline increases.

What will it mean for staff?

No-one knows. Pilots say they weren’t consulted. Staff at Flybe’s Exeter Airport HQ will be worried that Virgin Atlantic may cut head count at the Devon airport and move some jobs to its base in Crawley, just south of Gatwick.

And passengers?

While Virgin Atlantic (short-haul) is promising enhanced customer service, there are no promises on routes. The buyers will be looking closely at every link, assessing whether planes, pilots and cabin crew could be more profitably deployed elsewhere.

At present, all operations continue as normal. But changes could take effect as soon as the end of March, when the summer schedules begin.

Looking at the route networks, links from Edinburgh, Glasgow and Aberdeen to the southern half of England and to Belfast City in Northern Ireland look secure. Likewise links from Cardiff, Exeter and Southampton to the north of England, Scotland and Ireland will probably survive.

But airports such as East Midlands – just 32 miles as the Q400 flies from the key Flybe hub of Birmingham – may be affected.

Internationally, feeds to Amsterdam and Paris are likely to increase ahead of the Air France-KLM buy-in to Virgin Atlantic, which will see the Franco-Dutch group taking 30 per cent of the airline.

Southend is likely to benefit from new aircraft and an extended European and domestic network.

But some of Flybe’s non-core routes – such as Cardiff to Milan, Doncaster to Alicante and Leeds Bradford to Dusseldorf – may not survive a cull if the new owners continue the current “shrink-to-success” strategy.

Will the airline get some new aircraft?

Nothing will change in the near future, beyond Flybe continuing to return Embraer jets and standardise around the Bombardier Q400 aircraft.

Future aircraft orders will depend on the path Virgin Atlantic and its partners takes with the new airline; it is possible Airbus or Boeing jets could be deployed on some routes.