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The positive momentum for the economy and the industry (assuming no nasty oil price spikes) contrasted with numbers out from Flybe over the summer.
Readers of this column will know that I’ve been following the regional airline’s plight with some interest – given its high costs structure and intense competition from the low-cost airlines.
City investors have been spooked by constantly widening losses (three successive years of deteriorating results, plus increasing debt levels and weakening cash) and a sense of strategic drift.
The bottom line? Flybe’s cost structure is too high, its tickets too expensive, and it doesn’t have enough leisure travellers to fill aircraft.
What makes all this much worse is that the airline currently receives more than half its revenues within ten days of departure, making it vulnerable to short-term market shocks.
I’d also note that its cost per available seat kilometre (Ask) is more than double that of Norwegian, and more than four times that of Ryanair.
And if all that wasn’t bad enough I’d be more than a little worried that its labour productivity levels have been alarmingly low, with labour costs rising markedly as a proportion of total operating costs.
But the summer trading update did contain some positive news, with evidence that new chief Saad Hammad’s “fit to compete” programme is finally beginning to show results. Costs per seat seem to be coming down markedly and revenues at the airline’s Finnish division grew sharply.
Crucially after the sale of slots at Gatwick, the airline now seems to have enough cash to see it through the drastic restructuring that must be coming.
In particular I’d be looking for new commercial director Paul Simmons to change the strategic direction of the airline, pushing for lower fares and more bums on seats.
The battle for easyJet veterans Hammad and Simmons is now to take advantage of Flybe’s big advantages – a modern fleet, valuable near-monopoly control of key routes of airports such as Southampton, Birmingham, Belfast and Glasgow, plus the rapid growth of its contract flying business.
If the new Flybe team can work on these positives and intensify the cost reduction programme, then maybe the City can be won over.
Who knows, maybe even the recently announced tie-up with Thomas Cook at its regional hubs, could be the much-needed sign that Flybe has reached a turning point?
Dart powers ahead but challenges await
The very best results of the summer belong to a favourite of this column – the Dart Group and its Jet2com business.
Profits across the group (which includes a cold-store haulage specialist), shot up 33% for the full year 2013, with management “cautiously optimistic” of more growth in the coming year.
For me the standout number came from the new package holiday operation, where revenues increased 114% to £244m while operating profits increased by 160% to £6.5m.
Over at the airline, scheduled passenger numbers increased 13%, revenue per passenger was up 11%, and load factor increased 3 percentage points to 90%. Given Dart Groups’ strong balance sheet – cash of £190m – this probably makes Jet2.com the strongest regionally-focused low-cost operator in Europe.
But that ‘cautious’ optimism from chairman Philip Meeson is for me perhaps the most surprising insight.
Although net margins on the package holiday business may still be under 3%, this newish division is clearly growing at breakneck speed, while the airline is also remarkably profitable, having been profitable every year since 2008 .
Given these numbers, why the chairman’s caution?
Dart is clearly a cannily-run, prudent northern outfit that doesn’t like to bet on predictions.
Perhaps a northern sense of caution is lurking in the wings, especially about the UK economy, but I can’t help but think that Dart and Jet2.com may be now about to face some tough choices.
In particular I’d be paying close attention to the threat from the other low-cost airlines operating out of the same regional hubs at Jet2com.
As the likes of easyJet and Ryanair increase their list of longer-haul destinations, they must be looking at Jet2.com’s routes out of airports such as Leeds and Manchester, where Jet2.com is far from being a near monopoly player like Flybe.
Looking at its top ten routes, I’d note that Ryanair competes with it on seven of them and with easyJet on five.
And talking of easyJet, Jet2.com must have, in turn, noticed that airline’s success in luring business travellers on to its low-cost network – Jet2.com is pretty much exclusively focused on leisure destinations (mostly Spain), where demand is hugely seasonal.
Also, unlike many of its other lower-cost peers, Jet2.com has not (yet) succeeded in establishing non-UK flying bases.
Lurking in the background are some longer-term strategic questions – a tight-fisted approach to spending on new aircraft is all fine and dandy, but its (pre-owned) fleet is looking old – and expensive – giving outfits like easyJet a cost advantage as they introduce more fuel-efficient modern planes.
Plus there’s the possibility that Jet2.com might take a hit to profitability over the next five years if it loses more of its profitable Royal Mail contracts.
Dart still has plenty of aces up its sleeve, not least that package holiday business which could be the group’s biggest profit generator by the end of the decade, but surely the pressure to spend a bit more on new planes and extra routes must be growing?
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