Airline Flybe Group PLC (LON:FLYB) saw its shares lifted in mid-morning trading Wednesday after it said it would put itself up for sale blaming Brexit uncertainty, higher fuel costs and the weaker pound as its interim profits were cut in half.
The carrier said due to the above factors a takeover deal was likely to be required to preserve its future.
READ: Flybe shares plummet as airline guides to wider full-year loss
The group has already cut hundreds of jobs and closed unprofitable sites as it attempts to cut costs amid a growing price war in the industry.
The airline had previously planned to merge with FTSE 250 transport services provider Stobart Group (LON:STOB), before the deal was abandoned earlier this year.
The news came as the firm released its results for the first half of the year, reporting that pre-tax profits had fallen 54% to £7.4mln while revenues contracted 2.4% to £409.2mln although revenue per seat rose 7.2%.
The company had issued a profit warning in October that slowing demand would put a dent in its full-year earnings, causing shares to dive 41% on the day.
Load factor had also risen in the period, up 8 percentage points to 84%, reflecting better fleet utilisation.
However, the group’s capacity had been reduced by 9% while net debt increased to £82.1mln from £59.1mln at the end of last year, which the company blamed on “the seasonality of cash and adverse sterling movements”.
Cost saving measures amid “softening market”
In its outlook, FlyBe said while its strategy of reducing capacity had enabled it to report continued increases in revenue per seat, external factors including the weaker pound and higher fuel prices had driven up costs per seat, which coupled with “softening” market growth had affected its profitability in the European short-haul market.
The company added that Brexit remained “a major uncertainty” for the sector and that it was developing contingency plans including the reassigning of contracts in the event of a ‘no-deal’ scenario.
Due to these various challenges, the group said it was exploring various cost-saving measures, including a move to an LSE standard listing from its current premium listing, a move it said would allow “greater flexibility when considering divestments, particularly to recycle cash”.
IAG and easyJet “best shouts” for buyer, says analyst
Neil Wilson, chief market analyst at Markets.com, said that while the higher fuel costs and weak pound had pushed FlyBe to the current situation, “it has been for some time a zombie airline”.
“There are more of them and we see this as simply the latest domino to fall in the European short-haul airline sector. There will be more to come, although some temporary reprieve perhaps if oil continues to fall” Wilson added, stipulating that airline groups such as British Airways owner IAG (LON:IAG) or fellow budget carrier easyJet PLC (LON:EZJ) were “probably the best shouts” in terms of a buyer amid the risk of exposure to the volatility in the UK market.
In mid-morning trading, FlyBe shares were up 3.4% at 12.1p.
--Updates share price, adds half-year results, analyst comment, and information on previous Stobart deal--