Flybe's Q1 2014/15 Interim Management Statement

Flybe reports an encouraging start to the year, in line with management expectations, as the trading performance shows the benefits of our disciplined approach across four focus areas: capacity, revenue, costs and organisation. We also continue to prepare the business for future growth.
Capacity discipline – the right aircraft on the right routes in the right numbers with improved utilisation

UK Operations
· 17.2% reduction in seat capacity to 2.5m seats (Q1 2013/14: 3.0m seats).
· 9.2% improvement in aircraft utilisation with block hours per operating aircraft increased from 7.1 hours to 7.8 hours.
Finland JV
• Reduction in the number of loss-making scheduled lines of flying as two (out of six) aircraft have been returned to lessors and in dialogue with JV partner Finnair to address performance.

Revenue discipline – growing UK revenue per seat through higher load factors and robust route selection
· 9.5% growth in passenger revenue per seat to £52.79.
· Load factor increase to 75.8%, up 9.3ppts (Q1 2013/14: 66.5%) driven by planned 3.9% reduction in passenger yield to £69.61 (Q1 2013/14: £72.46).
· The 11 new routes which were launched in Summer 2014 are performing in line with route assessment model expectations.
· Flybe brand relaunched, including new purple livery, redesigned website, new advertising campaign, the world’s-first 60:60 ‘on time guarantee’ and improved on-board experience.
· Introduction in June of Paypal as a payment alternative on Flybe.com, making it easier for customers to pay for travel in the method they want.

Cost discipline – driving efficiency by reducing costs
· 16.6% reduction in total group costs (excluding grounded aircraft and USD loan revaluation gains).
· 1.6% reduction in UK costs per seat (excluding marketing and grounded aircraft) to £51.20.
· £24m planned cost savings on track in 2014/15, taking cumulative annualised savings in the turnaround plan to £71m.
· Strategic services agreement signed with Bombardier to make Flybe’s UK branded Q400 fleet one of the most operationally efficient regional fleets in the world.
· Lower aircraft ownership costs secured from the purchase of five second-hand Q400 turboprop aircraft from existing lessors for new London City operations.
· Long term solutions for nine grounded E195s being actively pursued. Maximum exposure for 2014/15 now capped at £26m as mitigation initiatives contribute to reducing ownership costs.

Organisational discipline – driving efficiency by employee engagement and operational excellence
· New employee engagement programme, “The Purple Way”, and new training programme, “Flybe Loves Service”, being rolled out across the business.
· MRO business unit to be retained, as a separate strategic business unit, following a detailed review and efficiency programme.
· Confirmation of long term commitment to the Training Academy in Exeter.
Flybe Finland – white label in line; in dialogue with Finnair to address scheduled flying performance
· Flybe Finland’s white label business performed in line with expectations.
· However, continuing decline in the domestic Finnish passenger market resulted in continuing revenue weakness in the scheduled flying operation. That decline has more than offset the reduction in scheduled capacity, and so losses in scheduled activity continue to be unacceptable in the Finland JV. Flybe is working with its joint venture partner, Finnair, to agree the necessary actions required to address this as soon as practicable.

Growth plans under way
· 16 new routes launched for Winter 2015, including five new London City routes and extension to year round operations of six of the Birmingham summer routes. Further routes being actively considered.
· Starting in October 2014, our new Flyshuttle service will offer customers a multi-stop ‘hop on and off’ service between Jersey and Aberdeen with up to three flights a day via Southampton and Leeds Bradford airports.
· In June, Flybe’s franchisee, Stobart Air, commenced operations from Southend Airport, flying two ATR72s in Flybe’s new purple livery.
· New code share agreement with Finnair launching in August 2014, under which Finnair’s code will be attached to Flybe’s UK domestic flights into Manchester. Codeshare agreements under discussion with other potential airline partners to improve UK regional connectivity to the wider World outside the UK.
· Flybe Aircraft Maintenance has been awarded preferred bidder status by Airbus Military to provide Maintenance, Repair Overhaul (MRO) services for the Royal Air Force fleet of A400M Atlas new generation airlifters at RAF Brize Norton.

Q2 2014/15 current trading remains in line with management expectations
· Flybe UK’s current forward booking profile for Q2 2014/15 shows:
o Seat capacity of c2.7m seats, down by c15% vs. prior year
o c45% of seats sold as at 14 July vs. c40% in the prior year;
o Passenger revenue per seat up by c9%.

Saad Hammad, Chief Executive Officer, said:
“Flybe’s momentum continues, with an encouraging start to the year. Our focus and discipline is delivering the operational improvement in the underlying business that we demand and which is required to drive our future profitability and shareholder returns.”

“We have launched a number of new routes and products, re-launched our brand and announced a number of exciting strategic developments with new partners. We have achieved a significant amount in the quarter, with substantially more to do in the months ahead.”

“Our plans to address the few remaining legacy issues in the business, especially the grounded E195 aircraft and the loss making scheduled flying business in Finland, are progressing and I look forward to providing further updates in due course.”