Flybe introduced services to six regional airports from London City this week. Chief executive Saad Hammad spoke to Ian Taylor
How serious was the situation at Flybe when you took over 14 months ago?
The airline was in deep trouble. Our cash position was precarious. Our costs were too high, even with the cost-reduction measures already under way.Our commercial capability was weak and too many routes were unprofitable.
Our network and organisation were complex and inefficient, we had surplus aircraft with types that were ill-matched to our network, and confidence was waning among stakeholders. Drastic action was needed.
What measures did you take?
I’d done a significant amount of due diligence before joining. Within the first month I launched the five Cs programme to move the business away from danger.
The first, cash, was about maximising financial headroom. The £20 million sale of slots at Gatwick (put together by the previous management) was one of the first things I signed. That gave the business sufficient runway for the transformation I had in mind.
The second, cost, was about immediate cost-reduction measures on top of those already under way. We took out £47 million of costs last year and sadly had to part with 1,100 employees, one-third of our staff.
The third was configuration: restructuring 40% of routes (exiting 30 and changing gauge and/or frequency on another 25), reducing the number of bases from 13 to six and grounding 14 aircraft – equal to 20% of our UK fleet. In addition, I disbanded the company’s divisional structure, streamlined the senior management and moved to a simplified organisation.
The fourth, commercialisation, was about strengthening our commercial capability by filling key management positions. Revenue, pricing and route management improvements were implemented and a number of marketing initiatives rolled out. Supplier negotiations delivered significant benefits. A route-profitability assessment and selection methodology was adopted. More than 100 new routes were assessed and 11 launched this summer, all of which traded ahead of expectations.
Confidence rebuilding was the final C. We engaged customers and listened to their needs; we engaged with unions, partners and ultimately, got investors behind our transformation programme.
Has confidence been restored?
The airline has returned to profitability. We’re carrying record numbers of passengers and delivering record load factors.
This indicates confidence has returned. We have much still to do, but we’ve come a long way. I’m encouraged that we can play a unique role in connecting regional communities and regional economies. The alternative to a 90-minute flight with Flybe is usually a car, ferry or rail journey that is at least three hours.
Flybe’s smaller aircraft enable it to fly from local airports and to operate low-volume routes that low-cost operators and larger airlines cannot serve profitably. On 80% of our routes this summer Flybe did not compete against another airline but against rail and roads. If Flybe didn’t exist, it would be necessary to invent it. We have a unique purpose providing regional customers with a service that is a necessity rather than a luxury.
Our shareholders supported a significant capital raise in March, confirming investors feel confident in the business and in the plans to take it forward . We’re in the early stages of our journey. We ended last year only marginally above break-even. But the momentum is encouraging.
What lessons did you bring from easyJet?
One was the importance of structure and process and an analytical foundation for decision-making. I launched a war on ‘voodoo management’, where decision-making is based on bias, personal preference and supposition.
Another was the need to control costs. If you control costs, you can control your destiny.
You’ve said there was ‘an absence of a cost culture’. What impact might passengers notice?
The only impact customers should see is lower prices. Prior to restructuring we had priced ourselves well above the sweet spot for most of our customers in the regions. Our costs were too high and the business lacked a cost focus. We not only launched a cost-reduction programme, but adopted rigorous controls over spending decisions.
We’ve made sure our prices are attractive. It’s as simple as that. Our new London City prices start at £31.99.
We’re offering an alternative to people used to taking the train – or bus – so we have to ensure we are quicker, more convenient and an easier way to travel. We also have to offer a competitive price point.
We offer a 60/60 guarantee – if a flight is more than 60 minutes late due to an airline delay, you get a £60 credit to use in 60 days.
Are the job losses at an end?
Losing hardworking and loyal staff has been the hardest part. Sadly, we had no alternative. But times are changing and, while there is still a lot to do, the future is looking bright. In the past few months we’ve recruited 150 staff.
You’ve changed a fleet order, substituting turboprops for Embraer jets. Why?
We needed to resolve our fleet issues to implement our strategy. We reached an agreement with Republic Airways and Embraer to terminate an order for 20 Embraer jets.
Instead we’ll sublease 24 attractively-priced Bombardier Q400s from March 2015. This agreement is pivotal as it allows us to fly the right aircraft, on the right routes. Our partnership with Embraer remains important – our fleet includes 11 E175s.
The most visible change is the rebrand. Why did you switch to purple?
In the spring we reinvigorated the brand with a vibrant new look and enhanced our product offering. Purple is the core brand colour as we feel it reflects our determination to be modern, dynamic and fun.
It’s our way of saying we’re going to deliver an experience that is comfortable, efficient, distinctive and enjoyable. Our crews have modern, smart uniforms and our aircraft are being repainted purple.
It is not just a colour – it signifies a new way of doing business: professional, passionate, positive, people-focused and playful.
What’s the thinking behind the FlybeShuttle?
FlybeShuttle is a hop-on, hop-off multi-stop service – akin to a bus service in the sky but faster and attractively priced.
The key is to enhance the number of routes, connections and frequencies to poorly served regions. The first shuttle [launched this week] links Aberdeen, Leeds, Southampton and Jersey. Let me stress that each touchdown is very brief.
How important is the launch from London City?
Very important. London City is a major expansion for Flybe that will significantly boost connectivity. Six aircraft will be deployed and we’re expecting 500,000 passengers a year to travel on the routes.
It’s important to customers who are struggling to make commuting into London work, and important to residents of London, Exeter, Aberdeen, Inverness, Edinburgh, Glasgow and Dublin. These are routes that many people travel daily or weekly.
You can fly from Exeter to London City in 70 minutes from £34.99. Compare that to a train journey of up to three and a half hours in crowded conditions. We take people to the heart of the financial district, not to a station far from it or to an airport in West Sussex, Hounslow or Bedfordshire.
Support from the business community has been very encouraging. The services will be significantly faster than travelling via Heathrow, Gatwick or Luton, or via road or rail. This is a major step in meeting Flybe’s strategic objective.
Can a regional carrier survive alongside easyJet, Ryanair and British Airways?
Our offer is completely different – our focus is on connecting the regions. We’re competitively priced, have the right frequencies and right aircraft.
The low-cost operators and BA typically don’t have the equipment or business model to serve regional routes profitably.
How do you see Flybe now?
It’s changing the way people think about commuting and travelling between the regions and that’s where we want to be. It’s a reborn company. Refreshed. Excited. Positive.