Weak demand, pricing competition, weather, & industrial action all impacted performance
Companies: Flybe Group
Shares in Flybe fell 10% on Wednesday after the small-cap British airline said it had cut capacity and costs due to weak demand and price competition, adding that it would now record a pre-tax loss for the year.
In a pre-close statement ahead of its finals in June, the AIM-listed operator said it had been a difficult period. Weak demand due to uncertain consumers and price competition from overcapacity amongst airlines, cancellations from bad weather, and industrial action in France all impacted revenue.
As a response, the Board said it had reduced costs and reduced capacity, slowing its year-on-year seat capacity growth to 10%. This resulted in 2.9% greater passenger yield and an estimated increase of 10% to passenger revenue.
The company also confirmed it was planning a major upgrade to its systems to be more suited to its increasingly digital business. However, due to the full review - the firm is writing down between £5-10m, leading to a swing to a loss:
"... which will significantly improve the customer experience and allow greater e-commerce activities. As a result, a full review of software assets and IT contracts is being conducted which is expected to result in additional cost and non-cash write-downs, which could impact profit by around £5m to £10m in the current financial year. Excluding this, adjusted profit before tax for the year ended 31 March 2017 is expected to be a small loss."
CEO Christine Ourmieres-Widener said she was very excited about the opportunities in Flybe, especially as the firm can now control its fleet size:
"Flybe is increasingly a digitally enabled business, with 80% of bookings already being made via our website. To seize this opportunity, we must first rebuild some of our core systems and this is now starting. We shall continue to reduce costs, work with our partners to improve efficiency and stop unprofitable flying."
Broker Liberum said the trading update highlighted competitive conditions and operational challenges:
"Management now expects a small underlying pre-tax loss, compared with our previous forecast of a small profit. Additional IT costs and write-offs have also been flagged."
