Flybe Group Regulatory News (FLYB)

17 August 2011

Flybe Group plc("Flybe" or "the Group")

Interim Management Statement

TRADING PERFORMANCE IN LINE WITH EXPECTATIONS AND GOOD PROGRESS ON EUROPEAN GROWTH STRATEGY

Flybe, Europe's largest regional airline, today announces its Interim Management Statement for the period to 16 August 2011, incorporating the first quarter ended 30 June 2011 ('Q1 2011/12').

Financial highlights:

·; Passenger revenue up 12.2% to £150.6m, total revenue up 8.3% to £160.4m.

·; Seats flown increased by 7.0% to 3.1 million. (Decrease of 1.7% excluding the impact of volcanic ash disruption in 2010). Passengers increased by 7.7% to 2.0 million, representing a 0.4ppt improvement in load factor to 63.1%.

·; Increase in revenue per passenger:

o ticket yield up 3.4% to £62.27;

o ancillary yield up 8.0% to £13.89.

·; Passenger revenue per seat up 4.9% to £48.09.

·; Fuel hedged at $851 per tonne for 79% of forecast remaining 2011/12 burn.

·; Total cash at 30 June 2011 of £103.3 million.

Strategic and operational highlights:

·; Acquisition of Finnish Commuter Airlines by Flybe Nordic AB, a new joint venture with Finnair - competition clearances received and completion scheduled for August 2011.

·; New divisional structure to support the Group's growth strategy.

·; Sale of three Q400 aircraft to Rand Merchant Bank ('RMB') at modest book profit.

·; Maintained leadership in core UK domestic business - market share of the Flybe brand in the 12 months to 30 June 2011 was 27.1%, up from 26.6% in the same period last year.

·; Continuing improvement in punctuality - 87.1% on-time flights in Q1 2011/12 against 85.4% in Q1 2010/11.

·; Agreement on pay and scheduling ratified by pilots' union BALPA and by pilot vote.

Commenting on the results, Jim French CBE, Flybe's Chairman and Chief Executive Officer said:

"This is a satisfactory trading and operational performance achieved against a continuing backdrop of high fuel costs and challenging economic conditions. We are pleased to report encouraging increases in revenue per passenger and revenue per seat.

The Group has also made excellent progress on its strategic growth plans, with the acquisition of Finncomm, the strengthening of the management and divisional structures and aircraft sales.

Current trading is encouraging, with forward ticket sales revenue up 6% year-on-year. Though at an early stage of the year and with uncertain macro-economic conditions facing us, based on current trading the Board maintains its expectations for the full year, and is well placed to deliver on its growth plans in the coming years."

Enquiries:

Key performance indicators

Q1 2011/12 capacity and revenue

Seats flown in Q1 2011/12 were 3.13 million, an increase of 7.0% over Q1 2010/11. Excluding the impact of the disruption to UK and Northern European airspace due to the eruption of the Eyjafjallajokull volcano in April and May 2010, seats flown in the quarter decreased by 1.7%.

Passenger numbers in Q1 2011/12 were 1.98 million, an increase of 7.7% (the YOY comparison also benefiting from the 2010 volcanic ash disruption), reflecting an improved load factor of 63.1% (up 0.4 ppts from Q1 2010/11).

Ticket and ancillary revenues increased, driven by a mix of volume and yield improvements:

·; ticket revenue increased by 11.3% to £123.1 million, with ticket yield per passenger growing by 3.4% to £62.27; and

·; ancillary revenue increased by 16.3% to £27.5 million, with ancillary yield per passenger growing by 8.0% to £13.89.

Passenger revenue per seat increased by 4.9% to £48.09.

Flybe maintained its leadership position in its core UK domestic market, with a brand market share in the year to June 2011 (including franchisee Loganair) of 27.1%, against 26.6% in the year to 30 June 2010. Excluding Loganair, Flybe's share of the UK domestic market for the same period was 24.7% (up from 24.3%).

Aviation Support and other revenue in Q1 2010/11 included revenue totalling £3.5m from our Olympic Air SA wet lease agreement. This arrangement completed in October 2010, and there is therefore no equivalent revenue in Q1 2011/12 - this is the main reason for the reduced revenue as compared to Q1 2010/11.

Operational performance

87.1% of departures were on time in Q1 2011/12, ahead of the 85.4% experienced in Q1 2010/11.

First quarter Airline cost performance

Airline costs per seat for the quarter to 30 June 2011 were broadly in line with management's expectations.

Hedging

Flybe's strong fuel hedging for 2011/12 reduces its short-term exposure to increased fuel costs.

Flybe has a clear hedging policy agreed by the Board. The aim of the policy is to reduce short term earnings volatility. The Group hedges forward, on a rolling basis, between 60% and 90% of the next 12 months anticipated requirements for jet fuel and US Dollar. The Group's current hedge books are summarised below (all hedges are forward swaps).

Jet fuel

·; Q2 to Q4 2011/12 - 79% of anticipated requirement hedged at $851 per tonne

·; 2012/13 - 11% of anticipated requirement hedged at $1,029 per tonne

US Dollar

·; Q2 to Q4 2011/12 - 91% of anticipated requirement hedged at $1.59

·; 2012/13 - 26% of anticipated requirement hedged at $1.63

Flybe currently has a broadly neutral position in Euro income and expenditure.

Fleet

Deliveries

Two new Bombardier Q400 aircraft were delivered in the quarter to 30 June 2011, with a further Q400 delivered in July 2011. This was the final delivery of Flybe's firm orders of Bombardier Q400 aircraft.

The first four deliveries of the 35 firm orders for 88-seat Embraer E175 regional jets are due for delivery in 2011, starting in late August.

Disposals

As part of its ongoing policy of optimising its fleet capacity (as outlined in the Trading Update on 5 May 2011), Flybe recently announced the disposal of three Bombardier Q400 aircraft to Rand Merchant Bank of Johannesburg, South Africa ('RMB'), which will lease them to South African Express. These Q400 aircraft were bought new from Bombardier by Flybe in 2007, and the sale prices provide a modest profit above the aircraft book values.

The first of the three aircraft has been delivered to RMB, and the remaining two are scheduled to be delivered by 30 September 2011.

As previously reported, Flybe has identified that the most compelling growth opportunities in Europe for the Group are likely to come through acquisitions which bring with them existing aircraft - as in the example of the acquisition of Finnish Commuter Airlines in joint venture with Finnair.

Accordingly, these Q400 disposals are part of our continuing process to adjust our fleet capacity in order to balance organic growth and demand across the Group as a whole.

Summary and current trading

With effect from 1 July, the Group's divisional structure was re-organised to better reflect and add focus to the Group's key objectives and growth areas. The Group now has a divisional structure comprising Flybe UK, Flybe Europe and Flybe Aviation Support.

In July 2011, passenger numbers were up on July 2010 by 3.8% to 0.76 million. This increase, coupled with a 2.2% year-on-year reduction in seats flown to 1.09 million, represents a 4.0ppts improvement in load factor to 69.1%. Passenger revenue per seat was up by 10.1% year on year. It should be noted that July 2010 passenger bookings and revenue were impacted by uncertainties arising from the April and May volcanic ash disruption.

Forward ticket sales revenue for the remainder of the 2011 summer flying programme from August to October currently show an increase over the same time last year of 6% on broadly flat capacity, with the growth coming from a mix of passenger volumes and ticket yield improvement.

END

Notes:

1. Passengers are people with an issued ticket where the ticket has charged a fare and/or a passenger surcharge and tax (if applicable). This includes people who purchase a ticket and do not show up for the flight where, as is usually the case, the ticket is non-refundable.

2. Seats represents the number of seats flown.

3. Load factor is the number of passengers divided by seats flown.

4. Ticket yield represents total ticket revenue per passenger (after the deduction of government taxes and levies).

5. Ancillary yield is total ancillary revenue per passenger.

6. Passenger yield represents total ticket and ancillary revenue per passenger.

7. Passenger revenue per seat represents total ticket and ancillary revenue per seat.

8. On-time departures occur when an aircraft brakes are released on departure no more than 15 minutes after its scheduled departure time.