Flybe Group Regulatory News (FLYB)

26 January 2015

Flybe Group plc

('Flybe' or 'the Group')

Q3 2014/15 TRADING UPDATE

TRANSFORMATION PROGRESSING IN A COMPETITIVE ENVIRONMENT WITH ENCOURAGING PERFORMANCE IN CORE UK BUSINESS

Flybe today reports its trading update for the three month period from 1 October 2014 to 31 December 2014. Flybe reports further progress by its core UK business as the airline continues with the implementation of its three year Transformation Plan and provides outlook for the Full Year 2015 performance.

Q3 Financial highlights Flybe UK

· 2.4% growth in passenger revenue per seat to £50.23 (Q3 2013/2014 £49.04)*;

· 5.5 ppts improvement in load factor to 74.3% (Q3 2013/14: 68.7%)*, driven by a 5.2% reduction in passenger yield to £67.65 (Q3 2013/14: £71.33)*;

· 6.1% reduction in seat capacity to 2.5m seats (Q3 2013/14: 2.7m seats) in line with strategy;

· 8.4% improvement in aircraft utilisation with block hours per operating aircraft increased from 7.3 hours to 8.0 hours;

· Passenger revenue reduced by 3.8% to £126.8m (Q3 2013/2014: £131.8m)*;

· Fuel markets are experiencing significant reductions in fuel prices with the dollar strengthening against sterling. Given our hedging profile on both fuel and USD, this will have no beneficial effect on our FY15 and minimal impact on FY16 results.

At group level, total group cost (excluding surplus capacity and USD loan revaluations) reduced by 4.7% to £133.7m (Q3 2013/2014: £140.3m).

Q4 2014/15 forward bookings trending ahead of prior year

· Flybe UK's current forward booking profile for Q4 2014/15 shows:

o Seat capacity of c2.6m seats, up by c14% vs. prior year;

o c36% of seats sold as at 20 January 2015 vs. c34% in the prior year;

o Passenger revenue per seat down by 3%.

Outlook - Full Year 2015 Performance

We will continue to fine-tune our new routes and compete aggressively for customers. Our lower cost base provides a firm foundation for our future development. We expect to achieve around break-even at pre-tax profit level for the Full Year to March 2015, before the costs of the E195s and any impact of USD loan revaluation, but after the already announced write down of Finland JV of £9.9m and EU261 flight delay provision of £6m. The Group is well positioned for the future with a strong balance sheet and an improving core UK business.

Saad Hammad, Chief Executive Officer, said:

"Flybe's improvement in its core UK business continues to progress. Only a year into our three year transformation we now have a platform which enables us to compete in a tough environment where the consumer demands value. We have responded to that by keeping our fares low and launching new routes. Having removed nearly a $1bn of future liabilities over the course of this year in relation to the firm legacy order for additional Embraer E175 aircraft and ongoing losses of Flybe Finland, we are making solid progress towards finding a solution to our remaining legacy issue, Project Blackbird.

We are now well positioned to continue our positive momentum towards delivering sustained profitability and value to shareholders."

UK Business

Our core UK routes continue to perform in line with expectations. Our marketing and brand awareness campaigns continue to resonate with customers across the UK regions and awareness of our "Faster than Road or Rail" product offer is gaining momentum. We intend to keep our fares low as we compete against airlines, road, rail and ferries.

We have launched 20 new routes for Summer 2015, including nine from the new base in Bournemouth and three domestic routes from London Stansted. The launch of six new routes to and from London City in October 2014 has been encouraging and as with all new routes these will remain under constant commercial review until they reach maturity. We took prompt action to discontinue the Inverness service and reduce frequency on the Exeter route and redeploy the capacity onto the strongly performing Edinburgh and Belfast routes.

Competitor activity has increased on some London City routes since our launch, with incremental seat deployment, price matching and significant loyalty scheme offers evident from legacy incumbents. While our increased frequency, competitive lead in fares and heightened presence continue to appeal to business travellers, we believe that this competitive pressure will extend the period of time that these routes take to reach maturity and deliver the full contribution we expect.

Flybe Shuttle, our new multi-stop "hop-on, hop-off" service linking Aberdeen, Leeds Bradford, Southampton and Jersey launched successfully, and since launch 20% of passengers are using more than one leg of the journey. We continue to monitor this unique service proposition and early performance is very promising.

We are continuing successfully to position the business for next year with an expanding route network for the Summer.

Flybe Finland

Costs arising from the sale of this business, including some redundancies, are anticipated to be around £1m. An announcement will be made once completion, which is subject to competition clearance, has been achieved.

Project Blackbird

We continue to pursue a permanent solution for the nine remaining Embraer E195s and reaffirm our November 2014 guidance that the cost to the Group of the E195s, including ownership and associated costs, amounts to a maximum of c£26m per annum. Exit timing and costs will still be dependent on the terms of each specific transaction.

A commercial decision has been made to utilise five E195s on selected routes during the Summer 2015 season. Our Route Assessment Model indicates that these are attractive routes for this aircraft type during this season. Utilisation of these five aircraft will not delay our efforts to deliver a permanent solution for these aircraft.

While it is expected that these Summer routes will make a small positive contribution to overall Group revenues and profitability in 2015, we believe it is prudent to maintain guidance at £26m per annum until a permanent solution is found and Flybe can provide further clarity. Finding a permanent solution for all nine aircraft is a continuing priority for the executive team.

Codeshares and White Label Partnerships

We have signed further new Codeshare agreements with Cathay Pacific and Aer Lingus and our Codeshare Partnerships now total 7. Implementation planning for our recently signed white label programme with SAS is progressing well and we remain on track for launch in Autumn 2015.

Fuel and Foreign Exchange Hedging

Whilst we, as with others in the aviation industry, welcome the overall decline in the Jet Fuel price, there remains uncertainty as to the duration of lower fuel prices. The benefit of lower fuel prices, given our hedging strategy, will not flow in significant amounts until 2016/17, though we will be covered in case fuel price increases next year.

Continued lower input prices may also provide us with the flexibility to take commercial decisions if needed, which could bring a benefit to our customers through lower lead in fares and enhance our long term competitiveness.

Flybe UK currently has a broadly neutral position in Euro income and expenditure and no exposure to the Swiss Franc. Flybe UK's current hedge books[1] are summarised below (all hedges are forward swaps).

Jet fuel

· Q4 2014/15 - 97% hedged at $948 per tonne

· H1 2015/16 - 71% hedged at $937 per tonne

· H2 2015/16 - 66% hedged at $900 per tonne

US Dollar

· Q4 2014/15 - 83% hedged at $1.65

· H1 2015/16 - 69% hedged at $1.66

· H2 2015/16 - 56% hedged at $1.58

Carbon

· Calendar year 2014 - 100% hedged at €5.22 per tonne

· Calendar year 2015 - 100% hedged at €4.80 per tonne

Enquiries:

END

Footnote:

* prior year comparison restated due to changes in segments. This is now consistent with the published financial statements of year ended 31 March 2014. Q3 2013/2014 included an error in stated passenger numbers, which overstated the calculation of the load factor by 2.1ppts and understated the passenger yield by 3%.

Notes:

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

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

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

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

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 2013/14; these documents are available on http://www.flybe.com/corporate/investors.