Flybe Widens Job Cuts as Fleet Reviewed in Reorganization

Flybe Group Plc, Europe’s largest regional airline, plans to scrap routes, close bases and cut the workforce by 20 percent as Chief Executive Officer Saad Hammad seeks to restore earnings after taking over in August.

About 500 posts will be eliminated from a payroll that stood at 2,764 at the end of March in an effort to deliver 7 million pounds ($11 million) of savings in the 12 months ending March 31 and 26 million pounds annually from fiscal 2014, Flybe said today, sending its stock up the most in nine months.

Hammad, a former EasyJet Plc chief commercial officer, has been reviewing Flybe’s plans since replacing Jim French, who established a strategy based around taking over regional routes from larger European carriers during his 12 years as CEO. The latest cuts come after the Exeter, England-based company doubled its annual savings goal from 2015 to 50 million pounds in June.

“The original concept is a sound concept,” Hammad said on a conference call. “But we have executed very, very badly in recent years. So we’re going to have to shrink to grow.”

Flybe said it will also review its fleet mix, seeking to remove surplus capacity and boost utilization, casting further doubt over deliveries of Embraer SA regional jets, 16 of which that had been due in 2014 and 2015 were put back to 2017 and 2019 in March. As of September the carrier had 37 Embraer jets plus 45 Bombardier Inc. Q400 and 14 ATR turboprops.

Profit Gain

Shares of Flybe rose almost 24 percent to 84.25 pence, their sharpest gain since Feb. 6, and were trading 84 pence as of 10:44 a.m. in London. The stock has advanced 65 percent this year, giving a market value of 65 million pounds.

The carrier, also Britain’s biggest domestic airline, is seeking to bolster its balance sheet amid high fuel prices and lackluster demand as the European economy struggles for growth. The company posted a pretax profit of 13.8 million pounds in the first half -- which included the busiest summer months -- versus a 1.6 million-pound loss a year earlier.

“We see scope for the turnaround program to outperform our assumptions,” Gerald Khoo, a London-based analyst at Liberum Capital with a “buy” rating on the stock, said in a note. “Management changes give us optimism that fresh ideas and new perspectives can be a catalyst for a sustained recovery.”

Failing Routes

While Flybe must establish “a very efficient U.K. core” to its business, the restructuring efforts should boost its ability to serve as a regional carrier for other European airlines, Hammad said. The company already works with Finnair OYJ in a joint venture that generated a small first-half profit and also provides flights for Belgium’s Brussels Airlines.

“Network carriers are in retrenchment mode and they still need feeder traffic,” Hammad said on the call.

Under the expanded savings plan, Flybe will incur 5 million pounds in one-time costs this year and have 9 million pounds in excess capacity, increasing to 27 million pounds next year. Some 61 of 158 routes don’t cover their costs, even after the earlier restructuring efforts, it said in a presentation to analysts.

Today’s move follows Hammad’s decision in September to scrap the company’s divisional structure and integrate Flybe U.K. with Flybe Outsourcing Solutions. In May, the company also agreed to sell take-off and landing slots at London’s Gatwick airport to EasyJet for 20 million pounds to boost capital.