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Flybe swallows up regional subsidiary of British Airways
By Patrick Hoeveler
No, he would never have dreamed five years ago that his company might one day become the biggest regional airline in Europe. “Our sole focus was survival at that stage,” says Flybe CEO Jim French today. In 2002 he had taken a courageous step in making Flybe the first regional carrier to embrace the concept of the low fare airline. The company, which is now based in Exeter, started out in 1979 as a traditional airline known initially as Jersey European Airways and later changing its name to British European. But then it turned its back on this model, as French recalls. “The plan was very simple and focused on five points. The Q400 played a very big part in our turn-around, and the Internet has caused an enormous change.”
First, the corporate identity should be committed to a retail brand and greater use should be made of the Internet. Second, French adapted the pricing model of the no-frills airlines, that is, offering one-way fares, with no refunds and onboard service subject to a charge. Third, the route network was refocused since it “lacked cohesion”. Fourth, French reduced the number of types flown to two, at that stage the BAe 146 and the Q400. The only part of the plan which has not yet been implemented is the IPO of Flybe at the stock market.
The acquisition of BA Connect put paid to this part of the plan. “Before the deal we were in great shape to go to the market. But now our objective is to go through the transition phase first. We will definitely not be going public this year.” The first challenge is to integrate the staff and aircraft newly acquired. The merger was completed officially on 25 March, just in time for the introduction of summer flight schedule. As a result, the workforce has risen from 1,750 to about 3,000. However, Flybe is only taking over the pilots, flight attendants and some of the maintenance personnel. Almost 250 jobs are to be shed.
The regional subsidiary of British Airways had also tried introducing a no-frills airline concept in January 2006 after its predecessor, CitiExpress, had racked up substantial losses. But BA Connect did not fare any better, as French points out. “Anybody can offer low fares, but the secret is to have low costs. They did not have low costs and were loosing a massive amount of money.” Accordingly, BA CEO Willie Walsh rapidly lost his patience and decided to hive off the airline, pointing out, “Point to point regional operations are not a strategic part of our business and we believe that such activities are better undertaken by a regional low cost airline.”
However, the take-over excluded the former BA Connect routes to London City and the route from Manchester to New York. The connecting services to London City have since been taken over by BA’s new subsidiary, BA CityFlyer, operating a fleet of ten Avro RJ100’s.
This will mean that the BA Connect brand completely disappears. All Flybe’s aircraft are to be repainted as soon as possible. The biggest thorn in French’s eye is the 50-seat jets which have now landed up in his fleet but which he would like to get rid of as soon as possible. “There is a seat cost penalty of 14 pounds per seat of the ERJ 145 compared to the Q400.” Partly to compensate for this disadvantage, British Airways paid the sum of £96 million (about 141 million Euros), which will also serve as a protection against any shortfalls in pensions. In return, BA received a 15 percent stake in Flybe, which it will no doubt dispose of once the regional airline goes public.
French is hoping to save “a minimum of £45 million” through cuts in BA Connect’s overheads. Conversion of the entire fleet to the two types of the Bombardier Q400 and the Embraer 195 apparently offers the potential for a further £30 million of savings. By the year 2010 the fleet is planned to comprise 82 aircraft. As only twelve E-195’s and sixteen Q400’s out of Flybe’s original firm orders remain to be delivered, however, French will have to make up the numbers through new purchases as well as converting existing options. “The merger has socked up all the aircraft which we had intended for growth. Now we need up to 20 extra planes.” The transition phase is due to end in mid-2009.
The route network is also being revamped. “The merger gives us the ability to schedule some routes to Europe’s business centers”, among those being Paris, Milan, Düsseldorf and Frankfurt.” Altogether Flybe now offers 152 routes from 22 airports in the United Kingdom and 34 destinations in Europe. During the transition period BA is allowing the Connect flights taken over to enjoy a codeshare. But the national carrier will no longer have any influence on future network planning. Here French wants to put extra emphasis on strong secondary domestic markets, a concept that he has already established in France. “Part of our business plan concentrates on developing regional markets. This includes Germany, which is becoming more and more important. As well as Düsseldorf and Hamburg, for example, there are another things we are looking at.”
He is expecting 5.3 million passengers to be handled during the business year 2006/2007. After the fleet conversion, this should rise to ten million passengers per year. Jim French emphatically rejects any suggestion that Flybe is growing too quickly. “Not at all!” he says. „Actually we are reducing excess capacity. We are still a regional airline with an average of 85 seats per aircraft. We do not want to compete with Air Berlin, Ryanair, etc. We are quite different to them, but we are also different form the regional affiliates of a Lufthansa or Air France. Our forecast for 2007/2008 is to stay in the black. During the merger talks we insisted not to jeopardy the financial integrity of Flybe.”
From FLUG REVUE 5/2007
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