Loganair expects to drop into the red over the current financial year, after being hit by costs linked to the ending of a franchise agreement with Flybe.

The Scottish carrier cited rebranding and start-up costs for new contracts as reasons for the warning.

Financial steps had been taken “to safeguard our ongoing programme of investment,” including an advance loan of £3 million from shareholders, the BBC reports today.

Loganair stopped flying under the Flybe brand in September after Flybe terminated a franchise agreement and established a new partnership with Humberside-based Eastern Airways, involving competition on some Scottish routes.

Loganair said costs included a new reservations system and bookings website to support “own-brand activity”, along with a customer contact centre at its Glasgow airport headquarters.

The regional airline serves more than 40 routes across the UK, Ireland and Norway, including lifeline routes between the Scottish mainland and islands.

Loganair’s forecast came as it reported a fall in pre-tax profits of 11%, to £3 million for the year ended March 31, 2017.

The airline saw an 8% increase in turnover to £103 million, while passenger numbers increased by 8.6% to a record of 765,091.

Punctuality increased over the period, with 80% of flights departing within 15 minutes of schedule.

Managing director Jonathan Hinkles said Loganair had made “a successful transition from franchise partner to operating under our own brand”.

He added: “We now have the freedom to implement new initiatives to make travel more convenient and affordable for our customers, and we have abolished credit card payment surcharges, introduced earlier opening of online check-in and removed ID checks at boarding gates.

“We have also re-launched a code-share agreement with British Airways, connecting our passengers to short and long-haul flights, and entered into an agreement with EasyJet, which allows our flights to be marketed on that company’s website.”

Meanwhile, the airline revealed it was “in the early stages” of a long-term plan to replace its fleet.

It wants to reduce the wide range of aircraft it currently uses, in order to simplify its engineering operations.

The carrier is also close to completing the remodelling of the interiors of its 12 Saab 340s, the 34-seat workhorse of the fleet.