Flybe today said it continues to anticipate “challenging” market conditions with group revenues expected to be broadly flat.

Passenger revenue for the three months to June 30 was down by 2.7% to £153.6 million against the same period last year.

Total quarterly revenue rose by 18.5% to £229 million due to increased contract flying activity by Finnair joint venture Flybe Finland.

The regional carrier reported a 2.9% cut in total costs in the first quarter of its financial year.

UK carryings rose by 4.9% to 2 million, with the load factor up by 4.3 percentage points to 66.5%.

Flybe said in an interim management statement that “good progress” had been made on the first phase of the airline’s turnaround plan after reporting losses of £40.7 million in the year to March 31.

Cost savings from the second phase of the turnaround plan are expected to result in additional year-on-year cost reductions from the second quarter onwards. Total costs of this stage of the restructuring are estimated at £5 million.

A full update is due to be given with the publication of half-year results for the period to September 30 in November.

The carrier said it “continues to experience a late booking profile from its passengers, reflecting the high propensity of business travellers”.

Flybe UK’s forward passenger sales revenue for the second quarter is showing a rise of around 3%, with an increase in passenger volumes more than offsetting lower yields.

The airline said: “The group will maintain its focus on lowering its cost base and is on target to deliver savings of circa £40 million in the current financial year, partially offset by expected headwinds such as an adverse US dollar exchange rate versus 2012/13.

“The board therefore believes that it remains on track to deliver results in line with its expectations for the year.”

Flybe’s new management team, led by former easyJet executive Saad Hammad, has started a full review of the group’s operations “and will report in due course on the future strategic development and direction of the business”.

The carrier last week confirmed the sale of its of Gatwick slots to easyJet for £20 million, with £7.5 million paid initially followed by £10 million in November and the balance in June 2014.

Deliveries of 16 Embaer E175 aircraft have been deferred from 2014 and 2015 to 2017 and 2019.