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Why you shouldn’t be concerned about booking with Flybe, despite press speculation

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I was going to write an article about a good new Avios promotion that Flybe is about to launch, and about what I learned about their frequent flyer plans when I met their new ‘Head of Loyalty’ recently.

I have decided to push that story back to Sunday (EDIT: it is now published and you can read it here) because I wanted to focus on something else today.  If you have been reading the press this week you have probably seen stories about ‘Flybe putting itself up for sale’ and some slightly more scurrilous rumours about the health of the entire group.

We have, without a doubt, seen a lot of airline failures recently which impacted the UK.  Monarch was the big one, of course, but Primera and Cobalt have also disappeared in recent weeks.  Some people seem to be putting Flybe into the same boat, but from what I can see that simply isn’t being realistic.

Will Flybe go bust?

Here is the interim results presentation released on 14th November (PDF).  A quick look at this shows that, on the face of it, Flybe’s restructuring is starting to work.  Revenue per seat was up 7.9% whilst costs per seat (including fuel, constant currency) rose by only 2.6%.  Operating costs fell slightly if you exclude fuel.

Is Flybe losing money?  No.  Whilst all of our City readers know that ‘profit’ can basically mean anything you want it to be, Flybe made £42m EBITDA in the first – admittedly lucrative Summer -half of its financial year.  If you’re not a finance person, EBITDA is ‘profits (earnings) before interest, tax, depreciation / amortisation’.  This figure is basically the cash it generated from day-to-day operations before paying its debts.

Is Flybe massively in debt?  Not really.  Net debt (debt minus cash in the bank) is only £82m.  There is £70m of cash on the balance sheet and £119m of net assets.  Only £19m of debt is repayable within the next 12 months.

Are Flybe planes getting emptier?  No, their load factor rose by 8% year on year – mainly by cutting poorly performing routes – from 76% to 84%.

And, unlike Primera, Cobalt and Monarch, Flybe is generally serving markets with no direct competition and no realistic indirect competition.  As the presentation points out, your alternatives for travelling from Southampton to Glasgow are not exactly enticing.

The caveat, of course, is that these numbers cover the Summer period.  We are now entering the Winter season when demand and fares are lower and where most airlines see lower profits.

The company recently put out a profit warning on the back of softening demand, higher fuel costs and currency weakness.  It also needs to secure financing for scheduled new aircraft deliveries and, as with many retailers, may be asked to provide additional collateral to Visa and Mastercard who are wary of potential Section 75 chargebacks.  It certainly won’t be an easy ride over the next 12-18 months but the fundamental trading pattern looks sound.

Why Flybe will not go bankrupt

Will Flybe be sold?

The company has announced that it is willing to listen to potential takeover or investment offers.

As a quoted company without a dominant shareholder it could, of course, be taken over at any time.  Any bidder could pick up some shares in the market, but it has to make a public statement when it reaches 3% and – at 30% – must launch a formal offer for the whole group.  Flybe is trying to circumvent this process by launching a regulated process which allows interested parties to have access to management without the need to make any hostile moves or publicly identify themselves.

I don’t know if Flybe will remain independent or not.  Stobart Group expressed interest in a bid a few months ago and they could return to the table.  What does concern me is that recent newspaper publicity could put people off booking with Flybe, even though – looking at the numbers released last week – the company seems to be at no immediate risk.

There is an element of self fulfilling prophecy here because if people stop booking Flybe because they believe it is going out of business, it will go out of business.  This will put 2,300 jobs at risk, along with many key airline routes which are vital to regional businesses, and that would not be good news.

I’d be happy to book with Flybe at the moment, and hopefully you would too.  Use a credit card and your money is safe anyway under the Section 75 rules.  Tomorrow I’ll tell you about their new Avios bonus promotion and what the new ‘Head of Loyalty’ is planning.

PS.  Just for clarity, neither I nor any of my family own shares in Flybe and this article is not an attempt to increase the value of my own holdings 🙂

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Comments (109)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • FlyUpTop says:
    17 Nov17 November 06:48

    Flybe up for sale has been covered many times over the last few weeks on my local news – SW.
    They employ quite a few people based at Exeter so let’s hope it all works out well in the end.

  • Jamie says:
    17 Nov17 November 06:59

    ‘this article is not an attempt to increase the value of my own holdings 🙂’

    You know some of your readers too well 🙂

    I think a lot of people have a love hate relationship with FlyBe which goes back to the days of their previous management that tried to provide a ‘low cost – low service’ offering whilst commanding a ‘regional niche-route business travel’ pricing.

    I do like the more obscure routes Flybe offer – I tried Jersey – Doncaster once as my way to get from Gatwick to Newark, and East Midlands to Glasgow (on my way back from Hull – got dropped off by family who were driving to London).

    If they can stay focused with a consistent product, service & marketing then they’ll hopefully do better over time.

  • Roger says:
    17 Nov17 November 07:06

    Rob – Correction:
    “If you’re not a finance person, EBITDA is ‘profits before interest, tax, depreciation / amortisation”.

    I am an engineer, but I can say E is for Earning, which does not equate to profit!

    • Genghis says:
      17 Nov17 November 07:17

      Tomato tomato. It’s a measure of the quality of the profits before all the stuff you can fiddle with.

      • Crafty says:
        17 Nov17 November 09:06

        You can fiddle a LOT with EBITDA. A number of recently struggling businesses went under the radar until late in their struggle cycle precisely because their measure of EBITDA did not approximate to cash, so nobody noticed what was going wrong until it was too late.

      • Rob says:
        17 Nov17 November 10:05

        I used ‘profits’ in laymans terms there. ‘Earnings’ and ‘profits’ are not interchangeable although City people treat them as if they are. When I started out you used PBIT – at some point everyone started calling it EBIT. And then, yes, we all started using EBITDA.

        Flybe also used EBITDAR but since the ‘R’ is aircraft rental, which is a fixed operating cost, I ignore that. The reason they show EBITDAR is that you’d get that number if they stopped renting the relevant plane and instead bought it with a loan.

    • Ian says:
      17 Nov17 November 07:18

      I’m an accountant, and I can confirm this.

      Earnings before ITDA are certainly not profits…although it can be a reasonable indicator of how a business is improving/worsening.

    • Jack says:
      17 Nov17 November 07:42

      Earnings do indeed equate to profit, if in this case you’re taking profit to be revenue – cost of goods sold – operating expense (which is EBIT)

      Stripping out depreciation and amortisation (EBITDA), which are non-cash expenses, is a way of showing the underlying P&L without all the accounting nonsense in it 🙂

    • pauldb says:
      17 Nov17 November 07:52

      Regardless of the definition it doesn’t really give you enough comfort just to know it’s positive. They still have to service the debt from those earnings and fund maintenance capex, and even if they can debt covenants will be the tipping point where the banks (and maybe aircraft lessors too) can take effective control.

  • Matt says:
    17 Nov17 November 07:09

    Nice Article Rob, and the point about being protected for credit card bookings is simple. Not too much to fear here.

    • Genghis says:
      17 Nov17 November 07:13

      Although S75 IIRC only protects for cost, not replacement cost.

      • Callum says:
        17 Nov17 November 15:52

        Everything I’ve seen says it does. Not that I’m confident enough to state it as fact as I’ve never looked into this in detail!

        • Genghis says:
          17 Nov17 November 16:56

          After doing a bit of digging it appears you’re right. Didn’t know that. Thanks.

  • Scallder says:
    17 Nov17 November 07:13

    S75 itself is only for amounts over £100. If (like BA) they bill tickets individiually (not sure as havent flown Flybe in a long time) then you could be in the situation where you buy multiple tickets all under £100 and you won’t be covered

    • Scallder says:
      17 Nov17 November 07:16

      Yes there is the chargeback route but it’s not a legally entitlement…

    • Oli says:
      17 Nov17 November 08:07

      They do not bill tickets individually. Two weeks ago, my booking for 4 people appeared as one line only on my credit card statement

      • Genghis says:
        17 Nov17 November 08:26

        That’s not relevant for S75. Ie I go to John Lewis and buy an item for £50 and another for £70. I’d be billed £120 but N/A re S75. Argument was to do with whether flights are sold as singles £100

        • Genghis says:
          17 Nov17 November 08:28

          Not too sure what happened there. Argument was to do with whether flights are £100.

        • Oli says:
          17 Nov17 November 09:04

          So if for a family of 4 I buy 4 return tickets at £80 each, i’m not covered even if the transaction is above £100?

        • Scallder says:
          17 Nov17 November 09:33

          Was simply going this off the Which website:

          “If you book a return flight, the total value must be at least £100 – if you book flights individually, each must be at least £100.”

          https://www.which.co.uk/consumer-rights/advice/your-rights-if-an-airline-goes-bust

        • Nick says:
          17 Nov17 November 10:45

          That’s correct. Even more importantly, it depends how the tickets are sold. If as one-way (like Ryanair and – yes – flybe) then the ONE WAY cost has to be over £100. If it’s sold as a return ticket (like BA longhaul and Heathrow shorthaul but NOT Gatwick) then this counts. You can work it out by adding up two one-ways and seeing if it’s more than or the same as a return.

        • Genghis says:
          17 Nov17 November 11:59

          Words and symbols seem to be disappearing from my posts…

          • Rob says:
            17 Nov17 November 12:38

            Odd. Could be an issue with the new hosting – in particular how it is cacheing pages – but not sure why random words would go?

    • Nigel the pensioner says:
      17 Nov17 November 09:09

      Multiple tickets for under £100…..with FlyBe….are you joking???

      • Oli says:
        17 Nov17 November 09:40

        My usual route – Southend to Rennes – is rarely more than £100 return when booked 4-5 months in advance. And we always travel during school holidays on full flights.

        • thehornets says:
          17 Nov17 November 12:19

          I just booked four seats – Southend to Dublin – for £55 each around a month in advance of travel.

        • Nigel the Pensioner says:
          18 Nov18 November 22:33

          Look at your route and at your lead in time. Regrettably as a pensioner, I cannot plan so far in advance!! I usually have to take a case each way and fly ex BHX. I don’t care where I sit but its always significantly over £100 pp even with “great” deals”!
          :- )))

        • Shoestring says:
          18 Nov18 November 22:41

          I fail to believe you think you will possibly cark it before the next flight – and even if you did, would you not get a refund?

  • Pb says:
    17 Nov17 November 07:27

    EBIT DA , one of the worst things to come out of the City / analysts / scribblers .

    • Alex Sm says:
      17 Nov17 November 18:29

      In Russian Ebitda sounds very close to “f*cking”, which only aggravates the issue…

  • Adam says:
    17 Nov17 November 07:48

    The problem with S75 protection is that you can get your money back but it doesn’t help you get to your destination especially if it is one of the routes where – as you said – there is no alternative. If it is short notice the train fare can have gone up 6 fold over an early saver ticket.

    Unfortunately I will not be as bullish at this time until I see signs of improvement.

  • Marcw says:
    17 Nov17 November 08:07

    If I needed a flight for next week… I’d take Flybe. Now, booking ahead, may, june… no thank you. There are no guarantees that the airline will exist then.
    Even though 75 exists… it is just headaches: it does not get me to my destination.
    And if FlyBe goes bankrupt, it goes bankrupt. Someone else will replace them.

    • ADS says:
      17 Nov17 November 10:41

      don’t assume that “someone else will replace them” … that may be true for some of the more lucrative routes – but for many others it may not.

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