Grounded Flybe in the air again thanks to Virgin
Having looked a misstep or two away from being grounded for good, struggling regional airline Flybe has suddenly taken off. Not just like one of its dinky little planes either. The shares yesterday morning more closely resembled the sort of rockets Sir Richard Branson’s Virgin Galactic envisages using for its SpaceShipTwo VSS Unity reusable space launch system (just trying saying it quickly).
Virgin is the operative word here, because it’s Sir Richard’s part owned Virgin Atlantic’s interest in Flybe that’s got everyone excited. The transatlantic airline has emerged as a potential bidder for its lower flying peer that last week threw in the towel and put itself up for sale amid a tightening financial squeeze.
Flybe’s business has been taking hits from all sides. Its planes are increasingly uneconomic against the backdrop of a rising oil price, and sterling’s status as a bargain basement currency thanks to the spectacular
mess Theresa May and her government have made of Brexit. It is suffering from the effects of competition from ultra low cost carriers too. They take people a lot further for not very much more in terms of price. And sometimes less. Compensation costs under EU law are another pressure.
Combined, that’s a lot of turbulence for a relatively small company, whose long term investors have had to repeatedly reach for sick bags. Flybe floated on the stock market at 295p back in 2010 but started its descent soon after. Even after the more than 70 per cent rise prompted by the news of Virgin’s interest, they were still trading at only just above 16p. Aviation may no longer be glamorous, but people inexplicably find it exciting and want to put money into it, even though the best way to make a small fortune is to invest a big one in airlines not named Ryanair.
The reason Sir Richard & Co fancy Flybe isn’t hard to divine. Flybe would allow the airline to feed passengers to Virgin Atlantic from smaller regional airports – the two already have a code sharing arrangement.
An earlier attempt by Virgin to crack the regional market – via Little Red – ended in closure with the tycoon complaining about the meagre package of landing slots the company operated. But Flybe has some valuable real estate at Heathrow with the slots it has that are reserved for domestic use and learning from past mistakes is a good way to ensure future success.
Virgin may not have it all its own way, however. Flybe rejected a past takeover approach from the Stobart Group, another company with a highly recognisable brand name, an airline, and not a few big egos around the boardroom table.
If this leads to a takeover battle, Flybe’s investors won’t be flying home first class. But they might be able to muster up a taxi fare to get them to the airport.