Sky-high fuel costs and weak demand add to Flybe woes

FLYBE, Europe’s largest regional airline, has flown deeper into the red in its second financial year since flotation, as City concerns mount over dividend prospects at the group.

The airline, which flies from airports including Edinburgh, Cardiff and East Midlands, has been hit by high fuel costs and weak economic conditions that have impacted both leisure and business travel in the UK.

The City consensus is for losses at Flybe to have deepened to £8.2 million in the year to the end of March compared with £4.3m last time, just months after its stock market listing in December 2010. No dividend has been paid since then, none is expected when results are announced tomorrow, and many analysts have also written off the year to March 2013 as far as returns to shareholders are concerned.

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Douglas McNeill, transport analyst with Charles Stanley Securities, said: “Airlines are a viciously cyclical business. One year’s profit or loss does not matter that much. But the test for Flybe remains whether it can make money over the cycle. Over a five-year period or so, the company’s profit has been negligible.

“Flybe faces generally weak demand across both business and leisure custom, and there is no particular sign of that improving over the near-term.”

Business travel, with 40 routes flown out of Scotland, is 40 per cent of the company’s mix. The spotlight this week will be on any details on costcutting initiatives the airline flagged up following a profits warning last January. Chief executive Jim French said in a trading update in April that conditions remained “challenging”. He is expected to say how Flybe intends to boost revenues per seat and better match capacity to demand.

Andrew Fitchie, at broker Investec, forecasts losses of £8.5m for the year just gone and £1.3m in this financial year. He said Flybe’s key risk is “further deterioration in the UK regional market”.

Last month Flybe announced it was taking over one-third of the European routes run by Finland’s loss-making Finnair.