Budget airline Flybe Group PLC (LON:FLYB) saw its shares drop 7% this morning as it warned its full-year profit will be lower than expected, after its fourth-quarter saw “weak demand in an uncertain consumer environment.”
In a trading update, the small cap firm said passenger revenue in the quarter ended March 31 is estimated to have risen by 9.8% year-on-year, slower than the 13.5% growth seen in the third quarter.
The group said: “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.
“Weather related and operational cancellations, as well as industrial action mainly by French air traffic controllers also impacted revenue.”
In reaction, Flybe said it responded by slowing its seat capacity growth to 10% in the fourth quarter, down from 12.7% in the third quarter, with its load factor falling by around 1.4 percentage points year-on-year and passenger yields rising by 2.9%.
Looking forward, Flybe said summer trading so far is in line with expectations, with a 3% increase in capacity and a 6% increase in yield, helped by the later timing of Easter.
It added that some 18% of capacity has already been sold, in line with the prior year, and revenue has risen by 11%.
IT upgrade …
Flybe also said it is planning a major upgrade to its core information technology systems, which will lead to a £5mln to £10mln hit to full-year profit. Excluding this, the firm added, expects to see a small underlying pretax loss..
The airlines’ chief executive Christine Ourmieres-Widener said: "Flybe is increasingly a digitally-enabled business, with 80% of bookings already being made via our website. To seize this opportunity, we must first rebuild some of our core systems and this is now starting.
“We shall continue to reduce costs, work with our partners to improve efficiency and stop unprofitable flying,"
In early morning trading, Flybe shares shed 7%, or 3p at 40p.
In a note to clients on Flybe, analysts at Liberum Capital said: “The guidance is clearly disappointing, but stable revenue per seat trends in H2 and much slower capacity growth in 2018E give scope for optimism.”
They retained a ‘buy’ rating and 50p target price on the stock.