Flybe Share Discussion Threads

[netcurtains] 28/7/2018 19:31

dangersimpson2: You could look at it the other way. If Flybe did not have the 'potential' problems you mention then FlyBe would have a market cap of about £1 Billion. Since FlyBE only has a market cap of £89M you could argue that, yes there is a risk, but there is also a chance of a ten bagger (eg Wizz Air has a market cap of £2.5 billion - and I think FlyBe is still the UKs third biggest airline).

All you are saying is FlyBE has a risk attached to it. All I am saying is, yes it has, but if Flybe can escape that , it could be a ten bagger (or more) for it shareholders.

We know of at least one company that felt it could make serious money out of FlyBe if it could buy it for about 50p a share.

[toffeeman] 28/7/2018 19:28

Whatever we may think - this is THE best use of a BB such as this - I would like to thank @ds for the work - it is most helpful.

[sporazene2] 28/7/2018 19:25

@dangersimpson, i think that the set up in your worksheet needs adjusting. eg the company is guiding for H1 capacity reduction of 8.5%. Based on the prior year actual this gives 6313500 seats for the CY half, which would give a slightly higher revenue.

also not sure about your numbers for FY seat capacity, guidance is for 6% reduction, your 2nd half estimated seat capacity gives a total FY seat capacity reduction of 4.8%

[dangersimpson2] 28/7/2018 16:32

Obviously we are in the realms of hypothetical here. The issue as I see it is that they have gone from Net Current Assets of -£10.6m on 31st March 2017 to -£79m on 31st March 2018. Although some £53m of that is provisions which may change over time. A current liability provision is of course an exceptional cost they have already taken through the income statement for which they think the cash cost will be borne in the next year. So even if this is overstated that is still a real cash outflow they are expecting.

If they did lose something like a further £30m in 2018/19 then the short term liquidity is starting to look really stretched. They still have about £300m of planes with only £150m of debt secured on them so maybe they could borrow more against these. Because of these assets I don't see much risk of insolvency it's more the short term liquidity that may see them needing to raise fresh equity.

[bray2] 28/7/2018 13:40

You suggesting them Flybe could go bust given the cash flow problems or will it be a case again the ceo will ask investors for more money as the last ceo did.

[dangersimpson2] 28/7/2018 13:13

Jerseyman,

The company doesn't seem to give trading statement with profit guidance apart from close to period end. I think at this stage they can argue that their is sufficient uncertainty not to make a statement. If brexit was cancelled and the pound soared that may reverse all the FX effect for example. Think you've been around long enough to know that the idea that a company must be in line or they would have RNS'ed it is not always a good way to invest.

I just don't see how they can hit their forecast of c-£2m unless they get their load factor into the mid 90's or get H2 cost inflation down to zero. Seems a big ask from where current load factors are and +16.6% cost inflation in Q1. I really like the service they offer as a company but as an investment I can't see them generating any meaningful profit until they can get their ongoing costs under control. I was hoping they would be able to do that with the capacity reductions yet the opposite seems to be happening. When I first invested they had plenty of balance sheet strength to manage the short term issues like E195 leases and see them through to profitability. Sadly I no longer feel they have that margin of safety.

If you have modelled an achievable route to strong profitability though and think I'm over reaching on the short term risks it would be great to compare notes.

[el8ted] 28/7/2018 12:46

Leasing costs are falling and will continue to do so. Airport charges will also reduce given the nature of the slots and airports utilised. Don’t get why you’ve increased costs by 10% H2. Fares will rise hence turnover will increase given Fx & fuel costs, but will unlikely be detrimental as competing airlines wil have to do likewise. IT and return lease costs are not repeatable and I concur with the observation re; directors’ responsibilities. With falling capacity and increasing yields, allied to reduced leasing costs, I’m much less negative on outlook

[dangersimpson2] 28/7/2018 11:18

netcurtains,

Those are all good points on why the load factor has been increasing. And if they had managed to do this while keeping their costs under control then I would be joining you in expecting a positive year.

However between FY16/17 & FY17/18 we have seen airport charges, ground operations, aircraft rental & maintenance all increase despite reduced seat capacity. This has been partially offset by the reduced fuel costs but with these hedges starting to expire this will start to go up again.

Now in Q1 we are met with a 16.6% increase in costs, only 8.4% of this is actual cost increases and the rest FX but unless the FX movements reverse then it will be a similar impact for the rest of the year. I suspect some of the increased maintenance costs are due to having to return the leased aircraft in a suitable state so these should moderate as the returns are completed. Also aircraft rental charges should start to reduce with the recent deal. Hence why I am modelling a 10% cost increase in H2, the majority of which will be FX but this will still be a charge to the income statement.

None of these increases are likely due the IT upgrades. Those were capitalised in the last FY results so are not in as costs in the income statement. I would expect them to keep capitalising them in the future.

[jerseyman1] 28/7/2018 10:50

Sorry, don't agree with dangersimpson analysis. Matters such as one offs last year, seat capacity and extrapolation of constant currency costs leads to major misleading outputs. Directors have duty to report any change in market expectations greater than 10% from existing estimates immediately they are aware of them.....given current market expectation if PBT was even £1m adrift from current consensus then they would have to inform the market. They haven't.

[netcurtains] 28/7/2018 10:50

dangersimpson: you have not addressed the "one off" nature of the IT costs.

[dangersimpson2] 28/7/2018 10:45

Here are my seat capacity numbers by quarter:


17/18 18/19 Q1A Q2A Q3A Q4A FY Q1A Q2 Q3 Q4 FYSeat Capacity (m) 3.4 3.5 3.0 2.7 12.6 3.1 3.2 2.9 2.6 11.8Passenger Numbers (m) 2.4 2.8 2.3 2.0 9.5 2.5 2.8 2.5 2.2 10.0Load Factor 72.5% 80.0% 75.8% 73.5% 75.6% 81.3% 88.8% 84.6% 82.3% 84.2%




Up to Q1 18/19 are actuals from trading statements & results.

Then from the Q1 trading statement:

- for Q2 we know there is a 9% decrease in seat capacity.
- for the FY we know they are guiding a 6% reduction in seat capacity so taking (FY17/18 x 0.94) - 18/19Q1A - (17/18Q2 x 0.91) gives us H2 seat capacity.
- Q3 & Q4 seat capacity I have split the H2 estimate in proportion to historic split between the quarters.

Load factor I have simply added 8.8% to each quarter.

Where do you think I may have gone wrong?

[el8ted] 28/7/2018 08:18

Are you sure of that seat capacity number (e) for first half 18/19? Also, a lot of the actual costs are non-repeatable eg IT spend. Revenue will have to increase by higher fares should oil @ USD costs increase going forward, but that will be reflected by the competition. Don’t think the picture is as gloomy as you’re predicting.

[netcurtains] 28/7/2018 08:13

clearly the past two months have been bumper good months for FlyBe (eg UK sun nationwide). Many people will be taking UK holidays and flying there.

The quarter statement just gone is actually good for Flybe because we had an unusually small Easter this year and even with the small Easter FlyBe produced some good results.

The summer, as I have said, will be even better.

The IT upgrade is a one off cost every ten years (I know BA had the BABs booking system for decades)

This has all the makings of an excellent year for FlyBe.

[bray2] 27/7/2018 21:27

We have always known Flybe are on he edge

[dangersimpson2] 27/7/2018 18:32

I've been running the numbers and I'm not convinced that the Q1 trading statement is positive for the company. The headline numbers look good with 8.8% increase in load factor but with reporting currency cost inflation at 16.6% I think they are on for a big loss this year.

This is what I get when I model all the info from the Q1 trading statement over the whole year:

8.8% increase in Load Factor all Q's.
9% Q2 & 6% FY decrease in seat capacity.
6.8% increase in revenue per seat for Q2, Q3, Q4.
16.6% increase in costs for Q1& Q2, 10% increase in costs for Q3 & Q4
White label & other revenue same as Q1 for all other Q's.


17/18 H1A 17/18 H2A 18/19 H1E 18/19 H2ESeat Capacity (m) 6.9 5.7 6.3 5.7Passenger Numbers (m) 5.2 4.3 5.3 4.8 Load Factor 76.0% 75.4% 84.8% 84.2% Passenger Revenue (£m) 378.9 296.9 375.9 317.1 Revenue per Passenger (£) 72.73 69.05 70.36 66.04Revenue per Seat (£) 54.91 52.09 59.67 55.63Cost Per Seat (£) 59.43 59.42 69.30 65.36 Cost (£m) 410.1 338.7 436.6 372.6 White Label Revenue (£m) 19.5 17.1 16.0 16.0Other Revenue (£m) 20.1 -0.5 12.8 12.8Total Revenue (£m) 418.5 313.5 404.7 345.9 PBT (£m) 8.4 -25.2 -31.9 -26.7



This would be a loss for the year of c£61m vs a market cap of £90m!

Now they may be able to push a bit harder on costs but they would have to see zero cost inflation in H2 to even get close to the brokers forecasts of a loss of £2m.

I was bullish here given the potential for the profits if they had got costs under control but the mix of unplanned maintenance, fuel & FX means that I can't see any way of them getting close to their numbers for this year. And if they generate a £30m+ loss this year I can see them needing more equity before being able to deliver a recovery in future years.

Would be interested to see if anyone is modelling a more optimistic FY18/19 scenario though?

[bray2] 27/7/2018 13:07

Like I said this isn't on the radar anymore so until anything material happens volumes will be very low.

[bcfcruleok] 27/7/2018 11:41

That 11930 trade was a buy!

[el8ted] 27/7/2018 09:45

I will be more than surprised if we see a rate rise next week. GBP weakness and oil price strength are definitely the big issues for Flybe...however, they are for all other UK airlines so prices across the board will rise. It just depends on how effective the hedging strategies are in the short term. Surprised there hasn’t been bigger volumes of shares traded today

[sporazene2] 27/7/2018 09:27

results seemed OK, some green shoots but still a work in progress, with positive guidance on costs falling for the rest of the year.

Brexit and Sterling seem to be biggest macro factors dragging sentiment on FLYB. Looking ahead we have BOE rate decision next Friday which is forecast to increase interest rates to 0.75% which will be positive for GBP. The week after is Q2 GBP which will influence cable one way or the other.

brexit looks another matter, seems like a game of chicken right now but I believe some kind of deal will be cobbled together at the last minute, too much at stake for both sides for no deal.

[netcurtains] 26/7/2018 14:56

Costs always rise (things rarely go down in price) , nothing wrong with costs rising as long as revenue coming in grows at a faster pace then costs.

It seems to me the market (early days) thinks this is base camp for recovery/take-over)

[toffeeman] 26/7/2018 10:00

Yes I get the need for fleet reduction - but if costs keep rising then it becomes a potential death spiral.

[el8ted] 26/7/2018 09:40

The core problems for Flybe were caused by the incompetence of French, years ago. Ordering too many planes and the wrong types. Hammad tried to sort out the mess but the root problem was excess capacity. Only now that aircraft are being reduced in numbers can the company become profitable. Now it’s down to the economy staying strong.

[phillis] 26/7/2018 09:16

steady progress on all fronts

[bantam175] 26/7/2018 09:08

And we still haven't got to the levels available during the Stobart takeover bid yet.

Bit early to jump in imho

[owenski] 26/7/2018 08:53

It sounds good, but the caveat is, their costs are up.