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Flybe Group: Another profit warning issued amidst a chaotic industry
On 18th October 2017, Flybe Group Plc issued a profit warning, the second one following an earlier warning in March. The company warned that profits for the first half of 2017/2018 are expected to be in the region of £5m-£10m ($6.8m-$13.5m), down from adjusted profit before tax of £15.9m ($21.5m) for the same period last year. This follows an announcement in March in which the company revised its profit expectations to a loss for year-end March 2017, rather than the earlier anticipated small profit that had previously been announced. While CEO Christine Ourmieres-Widener has expressed confidence that the company can improve its performance going forwards, the share price tumbled by almost 20% following the announcement.
Flybe specializes in short haul routes, a sector of the industry that is extremely saturated and competitive. Following issues with long haul destinations in recent years, including civil and political unrest in the Middle East, the short haul sector has seen an influx of competition from other operators. As such, Flybe, and many other UK carriers, have been facing intense competition that has been driving prices down. The UK airline industry has also faced the pressure that has come with the imminent departure of Britain from the EU. As such, Flybe’s profit warning comes at a time when the industry is being perceived as particularly fragile, with air carriers, particularly in the UK, being viewed as vulnerable.
Flybe’s financial situation does not necessarily spell the end for the company. This isn’t new for Flybe; the company has issued numerous profit warnings, faced unpredictability and high costs, but it is still around. The situation at present with Monarch exiting the market is projecting an image of vulnerability for airlines operating in the UK. However, the collapse of Monarch will actually help Flybe in the long run as price competition is eased and opportunities for growth arise.