Flybe Group Regulatory News (FLYB)

Flybe Group plc

('Flybe' or 'the Group')

Interim Management Statement

Flybe, Europe's largest regional airline, today announces its Interim Management Statement for the period to 7 August 2013, incorporating its performance in the first quarter ended 30 June 2013 ('Q1 2013/14').

Flybe will announce its interim results for the half-year ended 30 September 2013 in November 2013.

Highlights[1]

Group

·; Trading in line with expectations.

·; Revenue under management[2] up 18.5% to £229.0 million due to increased contract flying activity in Flybe Finland, Flybe's joint venture with Finnair.

·; Group revenue increased by 0.7% to £164.2 million (Q1 2012/13: £163.0 million).

·; Good progress on implementation of Phase 1 of Flybe's turnaround plan:

o 2.9% reduction in total costs in Q1 2013/14 (excluding restructuring and revaluation of USD aircraft loans).

o Cost savings from Phase 2 of the turnaround plan are expected to result in additional year-on-year cost reductions from Q2 2013/14 onwards.

·; Total cash at 30 June 2013 was £54.6 million (30 June 2012: £59.8 million), of which £23.6 million was free cash.

Flybe UK

·; Scheduled seats flown were 3.0 million, down 1.6% on Q1 2012/13.

·; Flybe UK generated total revenues of £152.4 million in Q1 2013/14, down 1.2% on Q1 2012/13.

·; Passengers totalled 2.0 million, up 4.9% on Q1 2012/13, representing 4.3 ppts increase in load factor to 66.5% (Q1 2012/13: 62.2%).

·; Passenger revenue per scheduled seat of £48.20 was in line with Q1 2012/13.

·; Costs per seat for the quarter to 30 June 2013 decreased by 1.9%.

·; Fuel hedged at $988 per tonne for 80% of forecast burn in Q2 2013/14, and 73% hedged for H2 2013/14 at $992 per tonne.

Flybe Outsourcing Solutions

·; Flybe Finland:

o Total revenues of £64.8 million in Q1 2013/14, up 113.9% on Q1 2012/13 due to increased number of aircraft on contract flying, from which revenues of £56.0 million were generated (Q1 2012/13: £19.1 million).

o Operated seats flown were 1.2 million, up 81.5%, of which seats flown under contract totalled 1.0 million (Q1 2012/13: 0.4 million).

·; Flybe Aircraft Maintenance:

o Revenues of £10.1 million in Q1 2013/14 (Q1 2012/13: £10.0 million), of which £7.0 million (including proceeds of £1.7 million from sale of inventory) was from third party customers, versus £6.2 million in Q1 2012/13.

o Costs for the quarter to 30 June 2013 decreased by 14.4% over Q1 2012/13.

Strategic and operational highlights

Flybe UK

·; Sale of slots at London Gatwick to easyJet plc for £20.0 million in cash was approved by shareholders on 2 August 2013, with £7.5 million of cash received on that day. £10.0 million will be received in November 2013 with balance of £2.5 million in June 2014.

·; Signed agreement with Embraer to defer 16 Embraer E175 aircraft deliveries, originally scheduled for 2014 and 2015, to 2017 to 2019.

·; Strategy to increase passenger volume resulted in 4.3 ppts improvement in load factor to 66.5%.

·; Market share of Flybe brand in the three months to 30 June 2013:

- UK domestic market - 29.0% (Q1 2012/13: 28.3%)

- UK regional market (excluding London) - 55.0% (Q1 2012/13: 51.2%).

Flybe Outsourcing Solutions

·; All the core businesses of Flybe Outsourcing Solutions (the Finnish joint venture, Flybe Finland; Flybe Aircraft Maintenance; Training Academy; and contract flying for Brussels Airlines) traded profitably in Q1 2013/14.

Restructuring update

·; In Flybe's annual accounts for the year to March 2013, management reported that the restructuring programme is targeted to deliver cost savings of £40 million in 2013/14, rising to annualised savings of £49 million for 2014/15 year onwards. Progress remains on track to achieve these goals and a full update will be presented as part of the half year results presentation in November 2013.

·; Restructuring and associated costs incurred in Q1 2013/14 totalled £2.7m. Management expect to incur further restructuring and associated costs of around £2 million in 2013/14, taking the total costs of delivering Phase 2 of the turnaround plan to approximately £5 million.

Board and management

·; Roles of Chairman and Chief Executive Officer separated with effect from 1 August 2013: Saad Hammad appointed as Chief Executive Officer and Jim French became non-executive Chairman.

·; Board restructured - number of executive Directors reduced from five to two.

·; New Chief Commercial Officer appointed with effect from 28 October 2013.

·; Search process for new Chief Financial Officer underway following Andrew Knuckey's decision to leave Flybe.

Trading outlook

The Board continues to anticipate challenging market conditions and that Group revenues will be broadly flat year-on-year. The Group will maintain its focus on lowering its cost base and is on target to deliver savings of circa £40 million in the current financial year, partially offset by expected headwinds such as an adverse USD exchange rate versus 2012/13. The Board therefore believes that it remains on track to deliver results in line with its expectations for the year.

Concurrent with the cost reduction programme, the new leadership team has commenced a full review of the Group's operations and will report in due course on the future strategic development and direction of the business.

8 August 2013

Enquiries:

Flybe under management KPIs (including Flybe Finland)

Flybe UK

Flybe UK comprises Flybe's UK domestic and UK to European airline operations.

KPIs

Revenue

Scheduled seats flown in the period were 3.03 million which was 1.6% down on Q1 2012/13.

Passenger numbers in Q1 2013/14 were 2.01 million, 4.9% higher than the same period in 2012/13. The load factor also showed an increase of 4.3 ppts to 66.5%. Passenger yield decreased by 6.4% to £72.46 as a result of Flybe's pricing being adjusted downwards to attract more customers.

Passenger revenues of £145.9 million were down by 1.8% on the prior year. Passenger revenue per scheduled seat was in line at £48.20.

Revenue from other activities in Q1 2013/14 was higher than the same period last year at £6.5 million due to increased charter revenue.

Costs

Flybe UK's costs per seat for the quarter to 30 June 2013 decreased by 1.9%.

Hedging

Flybe UK's current hedge books[3] are summarised below

Jet fuel (all hedges are forward swaps)

·; Q2 2013/14 - 80% hedged at $988 per tonne

·; H2 2013/14 - 73% hedged at $992 per tonne

·; H1 2014/15 - 53% hedged at $950 per tonne

US Dollar (all hedges are forward purchases)

·; Q2 2013/14 - 73% hedged at $1.56

·; H2 2013/14 - 73% hedged at $1.56

·; H1 2014/15 - 58% hedged at $1.53

Carbon (all hedges are forward purchases)

·; Calendar year 2013 - 88% hedged at €3.52 per tonne

·; Calendar year 2014 - 80% hedged at €4.37 per tonne

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

Market share

Market share of the Flybe brand in the UK regional market (excluding London) in the three months to 30 June 2013 was 55.0% (Q1 2012/13: 51.2%).

Total UK domestic market share of the Flybe brand in the same period was 29.0% (Q1 2012/13: 28.3%).

Flybe Outsourcing Solutions

All outsourced services provided to third party customers including contract flying, MRO services and training, are provided by one division, Flybe Outsourcing Solutions.

Flybe Finland

KPIs

The 193.2% increase in revenues from contract flying to £56.0 million has been driven by the extension - an additional 12 E190 aircraft - of contract flying operations for Finnair from 28 October 2012.

Flybe Aircraft Maintenance

Flybe Aircraft Maintenance provides maintenance, repair and overhaul ('MRO') services to Flybe UK, Flybe Finland and third party customers.

The MRO facility produced total revenues of £10.1 million in Q1 2013/14 (Q1 2012/13: £10.0 million), of which £7.0 million (including proceeds of £1.7 million from sale of inventory) was from third party customers, versus £6.2 million in Q1 2012/13.

Q1 2013/14 costs in Flybe Aircraft Maintenance decreased by 14.4% versus Q1 2012/13.

Flybe Training Academy

Third party revenues at the Flybe Training Academy totalled £0.5 million (Q1 2012/13: £0.3 million).

Contract Flying (other than Flybe Finland)

Contract flying of four crewed Q400 turboprops for Brussels Airlines generated revenue of £4.2 million in Q1 2013/14 (Q1 2012/13: £2.1 million from two aircraft).

Fleet

Deliveries

There been no deliveries during Q1 2013/14, with the next four E175 aircraft contracted to arrive from September to December 2013. Following the deferral of 16 Embraer E175 deliveries to 2017 to 2019, no deliveries are contracted for calendar years 2014 or 2015.

Disposals

During Q1 2013/14, two Q400 turboprops were sold to Aero Nigeria at a small book profit.

Current fleet

As at 30 June 2013 Flybe's aircraft fleet under management is as follows:

Of the total fleet of 96 aircraft, 25 are being deployed on contract flying for Finnair and Brussels Airlines. The average age of the fleet is 5.2 years.

Forward bookings

The business continues to experience a late booking profile from its passengers, reflecting the high propensity of business travellers. Flybe UK's forward passenger sales revenue for Q2 2013/14 currently shows an increase over last year of circa 3%, with an increase in passenger volumes more than offsetting lower yields.

END

Notes:

1. Operated seats are the number of seats flown including those on Flybe scheduled services, contract flying and charter flights.

2. Scheduled seats are the number of seats flown on Flybe scheduled services.

3. 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.

4. Seats represent the number of seats flown.

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

6. Passenger yield represents total ticket and ancillary revenue per passenger (after deduction of government taxes and levies).

7. Passenger revenue per seat represents total ticket and ancillary revenue per seat (after deduction of government taxes and levies).

Forward-looking statements:

Certain information included in these statements is forward-looking and involves risks and uncertainties that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

Forward-looking statements include, without limitation, projections relating to results of operations and financial conditions and Flybe Group plc ("the Group") plans and objectives for future operations, including, without limitation, discussions of the Group's Business Plan, expected future revenues, financing plans and expected expenditures. All forward-looking statements in this report are based upon information known to the Group on the date of this IMS. The Group undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

It is not reasonably possible to itemise all of the many factors and specific events that could cause the Group's forward-looking statements to be incorrect or that could otherwise have a material adverse effect on the future operations or results of the business. Further information on the primary risks of the business and the risk management process of the Group is given in the Annual Report and Accounts 2011/12; these documents are available on http://www.flybe.com/corporate/investors.