Flybe shares plummet after profit warning

Shares in Flybe fell more than 20% yesterday after the regional airline issued a profits warning yesterday due to a slump in demand for UK flights.

Flybe said the UK domestic market suffered an underlying sales decline of 8% in its third quarter compared to a 6% drop in the previous half-year, with December being “particularly disappointing”.

Investec analyst Andrew Fitchie is reported as predicting that the airline will now make a loss of £8.5 million in the year to March 31, compared to previous predictions of a profit of £6.4 million. And he anticipates further losses of £1.3 million the following year.

Shares in the airline had recovered slightly by the start of this morning’s trading to 55.50p, up 0.91%, but still well below their usual value of around 70p.

Yesterday Flybe warned that if UK domestic air travel continues to deteriorate it will not be able to achieve planned increases in yields. The UK represents 70% of the regional airline’s network and it is trying to reduce its dependence on routes within the country.

In a trading statement the carrier said: “Flybe UK’s passenger numbers and revenues for Q3 2011/12 were broadly in line with Q3 2010/11, despite the continued decline in the UK domestic market.

“However, this does represent a significant shortfall against our revenue expectations for Q3 2011/12. It is not expected that the Q3 2011/12 shortfall in revenue will be recovered during the remainder of the 2011/12 financial year.

“Based on latest sales trends, we believe that challenging market conditions will continue for the rest of the financial year to 31 March 2012.”

Revenue growth of 20% in the third quarter was driven by the airline’s entry into continental Europe with its Flybe Nordic joint venture.

“In these difficult market conditions, Flybe UK has maintained its yields at last year’s levels – as opposed to achieving the previously planned yield increases – thereby maintaining volumes and growing market share,” the statement said, adding that its share of the UK domestic market had grown by two percentage points.

Chairman and chief executive Jim French said: “The UK domestic market is clearly challenging.

“Under such circumstances, notwithstanding the shortfall against our revenue expectations, I believe that maintaining volumes and growing market share at the expense of planned yield increases was the correct decision to protect the long-term potential of Flybe.

“We have disposed of surplus aircraft this year and reduced our winter capacity in line with the market, and we continue to aggressively manage capacity and costs. We identified some time ago the need to lessen our dependence on the UK market and our move into Europe last year is progressing well.

“With a strong balance sheet, UK market leadership, a number of other opportunities under discussion and $500 million of aircraft financing secured – covering all planned deliveries to July 2014 – we believe that our overall strategy is intact and that Flybe has a strong future in the medium and long term.”

The airline is to issue a further update in its third quarter interim management statement on February 10.

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