A five-year deal with London City Airport sees shares in UK regional carrier Flybe (FLYB) rise 3.9% to 140.3p. Investors applaud the benefits to the Exeter-based airline of direct access to the capital from the UK regions, Scotland and Ireland.

The City Airport deal, which commences in October, will see Flybe operating new routes to and from Edinburgh, Belfast, Dublin, Inverness and Exeter.

Following on from its successful launch of eight new routes from Birmingham and a further four new routes launched from London Southend with franchise partner, Stobart Air, Flybe's City Airport tie-up represents a major step forward in meeting the group's stated strategic objective of expanding its branded scheduled commercial operation. This involves the development of new routes and bases within the UK following its successful fund raise of £150 million last month.

When Flybe posted a trading update on 4 April, it revealed a 6% growth in passenger volumes to 1.6 million in the fourth quarter despite a 4% reduction in capacity. Load factors increased to 70% in the period which Flybe attributes to its competitive pricing strategy. Higher passenger volumes more than offset lower yields, leading to a 4% increase in passenger revenue per seat to £49.80.

Forward sales are also looking encouraging with 20% of Summer 2014 seat capacity sold at 31 March 2014, compared with 17% at 31 March 2013.

While the figures continue to improve, Flybe’s Turnaround Plan (unveiled in January and May 2013) and its Immediate Actions initiative (launched in November 2013) are ticking over nicely and delivery of phases 1 and 2 of these plans remains on track. In the 2013/14 year, a total of £47 million was delivered in savings with a further £71 million expected to be delivered in cost-cutting in the 2014/2015 year.

When the group reports in June investors will be keen to see how Flybe’s brand relaunch, which was unveiled this month, is playing with customers. Initatives include a new strapline (‘The fastest way from A to Flybe’) as well as a new marketing and TV advertising campaign and what the airline is describing as a ‘a world-first 60:60 On Time Guarantee.’ This promises passengers that if a flight arrives more than 60 minutes late at its destination due to a delay within Flybe’s control, they will qualify for a £60 voucher towards their next flight if they book it within 60 days.



Issue Date: 23 Apr 2014