26th Jan 2015 08:30
LONDON (Alliance News) - Flybe Group PLC saw its shares slide early Monday after it said passenger revenue fell in the third quarter of its financial year as it kept fares low, and it won't get any benefit from the recent oil price decline in the current year, and a minimal impact next year, due to its fuel hedging profile.
In a statement, the airline said passenger revenue fell to GBP126.8 million in the three months to end-December, down 3.8% from GBP131.8 million a year earlier, despite 2.4% growth in passenger revenue per seat to GBP50.23, from GBP49.04.
The airline is restructuring and re-sizing, and cut seat capacity by 6.1% on the year to 2.5 million seats, from 2.7 million seats. Its planes were more full as a result, with load factor rising to 74.3%, from 68.7%.
For the final quarter of its financial year, Flybe's seat capacity is about 2.6 million seats, up about 14% compared with the same quarter last year. It had sold about 36% of the seats, up from 34% last year, but passenger revenue per seat is down by 3%.
Chief Executive Saad Hammad still said the airline was making good progress in restructuring the business and re-vamping its offering.
"Only a year into our three year transformation we now have a platform which enables us to compete in a tough environment where the consumer demands value. We have responded to that by keeping our fares low and launching new routes," he said.
"Having removed nearly a USD1 billion of future liabilities over the course of this year in relation to the firm legacy order for additional Embraer E175 aircraft and ongoing losses of Flybe Finland, we are making solid progress towards finding a solution to our remaining legacy issue," he said, referring to the company's decision about a further nine Embraer E195 aircraft that are surplus to requirement.
Those nine aircraft are costing Flybe about GBP26 million a year, although it has decided to use five of them on routes this summer.
Flybe said it expects to break even at the pretax profit level in the current financial year before the costs of the E195s and the impact of any dollar loan revaluations.
"We are now well positioned to continue our positive momentum towards delivering sustained profitability and value to shareholders," Hammad said.
The recent slide in oil prices, and hence jet fuel prices, has buoyed airlines that don't hedge fuel needs. However, there is a lag before airlines that do hedge and lock in prices in advance, see a benefit.
"Whilst we, as with others in the aviation industry, welcome the overall decline in the Jet Fuel price, there remains uncertainty as to the duration of lower fuel prices. The benefit of lower fuel prices, given our hedging strategy, will not flow in significant amounts until 2016/17, though we will be covered in case fuel price increases next year," Flybe said.
"Continued lower input prices may also provide us with the flexibility to take commercial decisions if needed, which could bring a benefit to our customers through lower lead in fares and enhance our long term competitiveness," it added.
Flybe is 97% hedged for its fourth quarter fuel needs at an average price of USD948 a tonne, 71% hedged for the first half of its next financial year at USD937 a tonne, and 66% hedged for the second half of that year at USD900 a tonne.
Flybe shares were down 15.8% at 75.80 pence early Monday, a 14-month low for the stock.
By Steve McGrath; [email protected]; @stevemcgrath1
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