March 29, 2017 / 6:52 AM / 6 months ago

Flybe cuts capacity and costs amid weak demand, pricing pressure

A Flybe aircraft taxis at Manchester Airport in Manchester, Britain June 28, 2016. REUTERS/Andrew Yates

(Reuters) - British airline Flybe Group Plc (FLYB.L) said it has reduced capacity and cut costs as weak demand, pricing pressures and rising competition from rail operators dented fourth-quarter revenue.

The airline, which connects British regional airports to London and other European cities, said on Wednesday it expects to report an adjusted loss before tax for the year through March 2017 due to a charge of 5 million-10 million pounds for a systems upgrade.

Flybe’s shares dropped 6.4 percent in morning trade following its results statement.

Brokerage Liberum had a prior pre-tax profit forecast of 4.2 million pounds for the year. It now estimates a loss of 3.8 million pounds.

The airline said that summer trading this year is in line with its expectations. It forecast an 11 percent increase in revenue in the first half of 2017-2018 and a 6 percent rise in yield, helped by the timing of the Easter holiday, which is later than last year.

In the quarter through March 2017 it estimated passenger revenue rose by 9.8 percent, compared with 13.5 percent in the previous quarter.

“The period has been characterised by weak demand in an uncertain consumer environment, together with price competition arising from overcapacity amongst airlines and sharpened price activity from rail operators,” Flybe said.

European airlines have driven down fares by adding more seats to boost their market share in a period of low oil prices.

Flybe said operational cancellations, industrial action mainly by French air traffic controllers and some weather-related cancellations also hit revenue in its fourth quarter

It said it expects its load factor to fall by around 1.4 percentage points in the three months to March 31, an improvement on the 1.7 percentage point fall in the previous quarter.

Flybe also estimated slower year-on-year seat capacity growth of 10 percent for the fourth quarter from 12.7 percent in the third quarter.

It said it expected a 3 percent rise in capacity for the first half of this year as the fleet size peaks. Flybe has taken delivery of nine Q400 aircraft in the year, and expects to reach fleet size peak next month with a total of 85 aircraft.

Reporting by Arathy S Nair in Bengaluru, editing by Louise Heavens and Susan Fenton

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