It seems the battle for FlyBe is over, with Virgin Atlantic leading a consortium with Stobart Air and Cyprus Capital to take over the ailing airline for the sum of £2.2 Million.
The Boards of Flybe and Connect Airways, a company bringing together Virgin Atlantic Limited, Stobart Group and Cyrus Capital, announced that they have reached agreement on the terms of a recommended cash offer for Flybe.
The new ownership split of Connect Airways (and thus Flybe) will be
- 40% by Cyrus Capital Partners
- 30% by Stobart Aviation, a wholly owned subsidiary of Stobart Group, who will contribute aircraft and its leasing business
- 30% by Virgin Atlantic Limited, the holding company of Virgin Atlantic Airways and Virgin Holidays.
The takeover will form a new airline – Connect Airways and will be operated independently to Virgin Atlantic, with the airline keeping its own Airline Operating Certificate. Stobart Air will continue to maintain its own Irish Airline Operating Certificate
Meanwhile, the new airline to Virgin Atlantic.
According to the release, it will drive customers from the regions to Manchester and London Heathrow – straight to the Virgin Atlantic long haul hubs. It will enhance its operations at Manchester and London Heathrow, with room for growth at London Southend.
If you invested in FlyBe, you’ll be gaining 1 penny per share on the sale – which is going to smart.
Connect Airways will provide a bridging loan of £20 million to keep FlyBe operations going in the meantime.
Christine Ourmieres-Widener, Flybe’s CEO said:
“Flybe plays a vital role in the UK’s transport infrastructure with a UK regional network which uniquely positions it to benefit from growing demands from long haul carriers for passenger feeder traffic. We have successfully implemented a clear strategy in recent years focused on tighter fleet management, improving revenue per seat and increasing load factors. The pursuit of operational excellence has reduced maintenance times and increased efficiencies and customer satisfaction.
“However, the industry is suffering from higher fuel costs, currency fluctuations and significant uncertainties presented by Brexit. We have been affected by all of these factors which has put pressure on short-term financial performance. At the same time, Flybe suffered from a number of legacy issues that are being addressed but are still adversely affecting cashflows.
“By combining to form a larger, stronger, group, we will be better placed to withstand these pressures. We aim to provide an even better service to our customers and secure the future for our people.”
Shai Weiss, CEO of Virgin Atlantic said:
“The Virgin Atlantic brand is built on the foundation of putting customers at the heart of everything we do, providing them with the choice they deserve and a travel experience they love. All possible because of our amazing people.
“We are pleased to have this opportunity to partner with Stobart Group and Cyrus Capital to bring Virgin Atlantic service excellence to Flybe’s customers. Together, we can provide greater connectivity to our extensive long haul network and that of our joint venture partners Delta Air Lines, at Manchester Airport and London Heathrow. In the near future, this will only increase, through our expanded joint venture partnership with Air France-KLM.”
Warwick Brady, CEO of Stobart Group said:
“The Board of Stobart Group believes that bringing Stobart Air together with Flybe and partnering with Virgin Atlantic and Cyrus Capital is the best way for us to play an active role in regional airline consolidation.
“The combined entity will be a powerful combination with sufficient scale to compete effectively in the UK and European airline markets. It will allow us to continue to work with Flybe and provides an excellent opportunity to continue to grow passenger numbers at London Southend Airport.”
Lucien Farrell, Partner of Cyrus said:
“We are delighted to be working once again with the Virgin Group following our successful partnership in the launch and eventual sale of Virgin America to Alaska Airlines. We believe Flybe’s strong market position and high quality management together with Virgin Atlantic’s dedication to the best customer experience and Stobart Group’s expertise in regional flying will produce a worldclass airline.”
The UK Regional Battle
Regional flying in the United Kingdom is a thankless task – with Eastern Airways, BMI Regional, Loganair and FlyBe competing for traffic. In addition, airlines like Ryanair and EasyJet will happily jump in and take traffic if routes are profitable.
And price sensitivity in the regional battle is key. With British Airways long abandoning the regions to FlyBe, the airline has been fighting car, train and other airlines – and in some cases – engaging in fare wars to attract customers.
With Virgin Atlantic wanting Connect Airways to act as a feeder, this can be a good chance for Virgin to try to run a regional airline again. The last time it did that – it didn’t end well due to poor load factors and some poorly timed slots at Heathrow.
Hopefully, this new operation will be run with a bit more logic and a lot more sense compared to Little Red.
But where to cut?
Flybe has hubs two major hubs – Birmingham and Manchester. It’s UK operations are spread across various airports including Aberdeen, Belfast City, Cardiff, Doncaster/Sheffield, East Midlands Airport, Edinburgh, Exeter, Glasgow, Guernsey, Jersey, London Heathrow, Newcastle, Southampton and Southend Airport (to name some of the airports).
That covers a large network in the UK, with European destinations also served.
And one of the first points of order will be where to cut and slice the network up – and that may mean some regional flying will terminate, or be shrunk.
Currently, the airline has a fleet of 54 Viking Air Dash8-Q400 aircraft, 11 Embraer E-175s and 7 E-195s and four ATR72 aircraft (from Stobart Air). The airline operates 5 ATR72 aircraft for Scandinavian Airlines.
It doesn’t take a wild guess that older or unsuitable aircraft may be removed from the fleet as Connect Airways try to work out how to make the former FlyBe profitable again.
A win for Virgin… and plenty of challenges ahead
Whilst it is an easy win for Virgin Atlantic who gets back some more Heathrow Airport slots and tries again with a regional airline, it will be interesting how the other players react – be they regional airlines, the low-cost carriers, or multi-nationals like IAG, Lufthansa Group and Air France-KLM.
And on the ground, there’ll be plenty of work – least of all with FlyBe’s awful on-time reputation.
But for now – a fresh start for FlyBe and the promise of continued regional operations is something to be thankful for.
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