Flybe to cut costs after higher maintenance hits profit

By Alistair Smout

LONDON (Reuters) - British regional airline Flybe (FLYB.L) said on Thursday it would continue to work to keep costs down following a profit warning last month, as the increased expense of aircraft maintenance weighed on its bottom line.

Profit came in towards the upper end of the new forecast range provided in October, sending the carrier's shares up nearly 5 percent in early deals.

But the rally was short-lived and the stock remains down over 15 percent since mid-October, when the airline first said that higher aircraft maintenance costs would mean first-half profit would be lower than expected.

October's profit warning was another shock to a sector which has faced turmoil this year, with Air Berlin (AB1.DE), Alitalia and Monarch all going into administration.

Flybe's adjusted profit before tax fell to 8.4 million pounds in the first half, towards the upper of the 5-10 million pounds range given in that warning.

It was down from 15.9 million pounds in the first half of its 2016-17 year.

Reiterating earlier comments, Flybe said its strategy was to focus on fewer, more profitable routes, and it would reduce its fleet size to around 70 aircraft in 2019/20 from a peak of 85.

Analysts have said that Flybe needs to reduce capacity to boost unit revenue, and the airline plans to return planes when their leases expire, rather than sell any aircraft it owns.

It plans to hand back six Bombardier (BBDb.TO) Q400s at the end of their leases this financial year.

"We don't see today the need to sell aircraft... but we have the flexibility if the market is changing to change this plan," chief executive Christine Ourmieres-Widener told Reuters.

"The market is still a challenging market, so we are definitely willing to stay with this fleet plan."

Some analysts were disheartened by the pessimistic tone of Flybe's outlook, especially after budget airline Wizz Air (WIZZ.L) reported record profits this week.

Flybe operates out of many of Britain's smaller airports, and has closed routes from Birmingham to Luxembourg and Rennes in France this year. Mark Simpson, analyst at broker Goodbody, said that exposure to these regional airports was impacting Flybe.

"This is a more negative tone as compared to the larger intra-EU network operators who have reported over the last few weeks and highlights more Flybe’s exposure to UK regional markets," he said in a note.

(Reporting by Alistair Smout; editing by Costas Pitas and John Stonestreet)