Flybe plans to trim capacity in 2017-18 and overhaul its booking technology after plunging into the red last year.
A pre-tax loss of £19.9 million compared to a profit of £2.7 million in the 2015-16 financial year.
The cost per sat rose by 2% to £53.74 over the period with revenue up by 13.4% to £707.4 million as passenger numbers increased by 7.6% to 8.8 million.
The airline said: “Despite the substantial progress in reducing the size of legacy fleet orders in 2015-16, Flybe has still seen significant capacity growth in a market where we witnessed slower growth in consumer demand.
“The company has deployed its additional capacity on new routes and increased frequencies on existing routes, solely where these deployments could deliver at least a contribution to direct costs.
“New routes and increased frequencies were targeted to cover marginal costs in the early years of operation, but do not contribute significantly to overall profitability. The capacity growth therefore had a negative effect on profitability.”
A new digital platform is planned from next year as part of a six-pronged business improvement plan also covering areas such as costs, fleet optimisation and reliability.
“A principal reason for customer dissatisfaction is the quality of our website and their interaction with it,” the carrier admitted.
“Over 80% of our customers are booking online via our website, with the majority being repeat customers.
“Our new digital platform, backed by our sales and marketing action plan, will enable us to attract new customers and enhance our customer relationship management.”
Flybe reached its peak fleet size of 85 aircraft last month.
Reduction in the fleet size will start by returning six Q400 turboprop aircraft in 2017-18 when they come to the end of their leases
“This will enable Flybe to become a more customer centric business and for the first time concentrate the business on profitable routes,” the airline said.
“Becoming a truly demand and customer-focused business is the key plank of our strategy.
“Implementing a clear strategy is about returning to the core of what really works for the airline. We will make Flybe a sustainable business that operates the best routes and at the best times to suit the needs of our customers.
“We will stay true to our mission to connect people and businesses with safe, reliable and affordable travel.
“Looking beyond the UK at this stage it is neither the right moment, nor do the markets currently support, an expansion of intra-European activity, leaving aside Brexit uncertainty.
“Our fleet size will start to decrease during 2017-18 which allows us to enter a phase of stabilisation and consolidation.”
Chief executive Christine Ourmieres-Widener said: “I am truly passionate about the airline industry and I see tremendous opportunities for Flybe to connect and engage with communities and to establish a reputation for excellence in serving our customers.
“We will be successful in delivering by continually focusing on our costs, increasing our knowledge about who our customers are and what makes them tick, achieving industry-leading operational excellence and implementing a great digital platform.
“Flybe has a great future as Europe’s largest regional airline. My team is focused on delivering an exceptional customer experience and building value for shareholders.”
Julie Palmer, Partner at Begbies Traynor, said: “Flybe is still experiencing severe turbulence, reporting a sizeable loss for the full year after a combination of crippling IT costs, overcapacity, increased fare competition and industrial action, dented its performance.
“Following a profit warning back in March, the surprise resignation of its CFO in April, and its share price down nearly 40% over the past year alone, investors still need convincing that Flybe can weather the storm in today’s increasingly competitive regional airline market.
“However, with European airports recently reporting a 14% increase in passenger traffic and analysts forecasting a more positive outlook for the air travel industry in 2017, Flybe will be hoping that its new alliance with Eastern Airways and these improved market conditions might mean clearer skies ahead.”