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What the Flybe buy-out means for passengers – and staff

In case you haven’t noticed, it is a fairly horrible time to be a budget airline.

On Friday Ryanair made its second profits warning since the winter season began in October. Yet the Irish carrier is still on course to make almost £1bn in profits this financial year, while filling its planes to within 5 per cent of capacity – the kind of problem that any other budget airline boss would love to have.

Its low-cost rival Norwegian is having a much tougher time. Last month its capacity increased by 34 per cent, year-on-year, but passenger numbers rose only 24 per cent. What does that mean? The average Norwegian Boeing 737 flight in December 2018 had 11 fewer paying passengers than a year earlier. No wonder it has dropped free spirits in its premium cabin; only beer and wine are now complimentary.

On Thursday, the Oslo-based airline said it would close its bases at Palma, Gran Canaria and Tenerife. Norwegian will end its short-lived UK-US “secondary airport” strategy by closing the final link from Edinburgh to Stewart International in upstate New York in March; fares in February are as low as £227 return if you want to grab one while stocks last.

Yet the short-haul airline whose staff deserve the most sympathy is surely Flybe.

The loss-making regional airline is being bailed out by a consortium of three parties, each with their own aims: Virgin Atlantic and Stobart Group have 30 per cent each, while the New York hedge fund Cyrus Capital Partners has the remaining 40 per cent share.

I have spent the week delving into the detail of what the deal means. The conclusion: whatever happens in the next couple of years, the airline will not look much like it does today.

The planes, for a start, will be different. The sale contract insists there is: “A commitment to bring the Flybe fleet up to standard which is befitting of the Virgin brand.”

Sir Richard Branson’s airline has “the right to confirm that the fleet refit is adequate having regard to the Virgin Atlantic brand”. And in terms of timing: “The entire Flybe Fleet is to be refitted at the earliest possible opportunity and in any event no later than two years from the completion of the acquisition.”

Virgin Atlantic gets 1 per cent of all the revenue for the use of its name.

Next, where will it go? The core of the current operation involves connecting geographical blocs: Scotland; northern England and the Midlands; southwest Britain (Cardiff, Newquay, Exeter and Southampton); the Channel Islands; and the island of Ireland.

Beyond this, Flybe operates a scattering of European services that lack coherence. Cardiff to Berlin, Doncaster-Sheffield to Paris and Southampton to Nantes may be viable business routes, but only at a frequency of one or two a day rather than the current one or two a week.

Every route will be assessed for its profit or loss. There is a lot more of the latter than the former right now.

The other dimension to deciding the shape of the new network: the benefit it can bring to the two aviation partners.

Stobart Air will be keen on anything that starts or ends at one of its two airports, Southend and Carlisle. Virgin Atlantic wants to improve connections to its long-haul network at Glasgow, Heathrow and Manchester – as well as Paris CDG and Amsterdam, with Air France-KLM taking a 31 per cent share in Virgin.

Existing relationships with Thomas Cook or IAG – British Airways’ parent company, which includes Aer Lingus – will be renewed only if all the partners agree. And I would not be amazed if Virgin Atlantic decided to veto anything it perceives as helping rivals, thereby chopping off connections.

The final discovery as I trawled through the details of the deal: Virgin Atlantic has been a “bona-fide potential offeror” for Flybe for a couple of months. I can disclose that a non-disclosure agreement was signed on 8 November.

The deal announced on 11 January saw the shares in Flybe valued at just a penny each, with the sale price just above £2m. A bargain? Not necessarily, given the tens of millions that need to be pumped into Flybe to keep it afloat. But if you happen to be a Flybe pilot who agreed to receive pay increases in shares, you have just seen the value of that equity implode to almost nothing.

Turbulent times.