Flybe will announce record profits in its upcoming full year results, despite the fact many airlines are suffering as crude oil prices continue to reach new highs.
Flybe chief commercial officer Mike Rutter - speaking ahead of annual results and before its franchise with Scottish airline Loganair launches in October – told ABTN the carrier is benefiting from a lower break-even factor, meaning it can withstand fuel prices more easily.
“The airline industry is facing the greatest set of challenges since the 1974 oil crisis, a triple whammy of record fuel prices - aviation jet fuel prices have increased 100% in nine months – reducing consumer demand for discretional leisure flights because of the credit crunch and increasing taxation driven by ill-thought-through green proposals,” said Rutter.
“As Europe’s largest regional carrier - Flybe will carry 8m passengers in 2008 – we have been preparing for these challenges for five years. While we couldn’t have predicted the size of the increase in the oil price, we were clear it was going to go up. We were also clear two years ago that consumers’ appetite for visiting places they had never heard of would wane, dented by a weaker economy and by a consumer backlash to the service attitude of some hard-core low - cost airlines.”
In 2003 Flybe took the decision to change its fleet to the lowest fuel-burn aircraft, spending more than $2bn on a new fleet of 70 turboprops and jets. The move is now paying dividends, because with fuel at current prices it still makes up only 24.6% of the carrier’s cost base, a far lower percentage than many airlines are having to spend.
“To help manage fuel we also put in place a rigorous fuel hedging policy and as a result have a nominal hedge cover for this year of 76%,” said Rutter. “So with lower fuel burn and better hedging, Flybe has the fuel problem covered.”
In 2005, Flybe also reshaped its network to create a mix of business destinations and places with large family links – types of travel it believed would be less affected in an economic downturn. The carrier completed the purchase and integration of British Airway’s regional operations in 2007, and now 42% of Flybe customers travel for business and more than 30% are visiting friends and relatives.
“As a result we have a network of routes of which more than 84% have twice-daily frequencies or higher,” added Rutter.
Environmental issues are clearly important to Flybe’s fleet strategy, and its investment in 60 turboprops in 2003 was made largely because they had the smallest carbon footprint for a European domestic market. It also launched the world’s first airline Ecolabel in 2007 to provide consumers with data on its fleet compared with other airlines.
Rutter is therefore bullish about the airline’s figures and position, despite a tough aviation climate – “Undoubtedly weaker airlines will be acquired and consolidated as a result of current conditions,” he said. “Flybe has been highly acquisitive and will remain so during this time. Five years of planning has ensured we will not only survive but prosper in these difficult times.