UK low-fare carrier Flybe has followed last week’s announcement that it was in discussions to potentially sell 25 pairs of slots at London Gatwick Airport, with a formal statement to the London Stock Exchange that it has now reached a conditional agreement to transfer the slots to easyJet for £20 million at the end of the Northern Hemisphere winter schedule in late March 2014, ending a 22-year association with the London airport. The sale follows an extensive evaluation of the carrier’s activities across the UK to return to profitability and which will see it axe around ten per cent of its 3,000-strong UK workforce to cut costs.

The proposed slot sale forms part of the second phase of Flybe Group's continuing ‘Delivery and Future Direction’ which is already showing positive signs. Key highlights include the carrier surpassing its target savings of £25m, with £30m of annual cost savings being delivered for year 2013/14 onwards, and a deal agreed in principle with BALPA (British Airlines Pilots Association) for a five per cent reduction in salary for flight crews in return for extra time off. The airline has also confirmed it has reduced its workforce by 22 per cent from 2,730 to 2,140.

Flybe says the deal with easyJet will provide cash proceeds “significantly above the book value” for the slots, reported to be £8.5 million. Under the deal with its low-fare rival, an initial amount of £7.5 million paid on the date that the approval of Flybe's shareholders to the Exchange is obtained; a further £10.0 million will be paid in November 2013 after the summer slots are exchanged following the IATA slot conference; and the remaining £2.5 million will be paid in June 2014 after the winter slots are exchanged following the IATA slot conference.

The plan is for Flybe to continue utilising the slots until the end of March 2014 and they will transfer across to easyJet on March 30, 2014 at the start of the summer schedules. Flybe says until then there would be no changes to flights, frequencies or timings on the routes in and out of London Gatwick. The airline currently serves eight markets from London Gatwick – Belfast City, Guernsey, Inverness, Isle of Man, Jersey, Newcastle and Newquay in the UK and Bergerac in France. It is the sole carrier on the Bergerac, Newcastle and Newquay routes but competes directly with other carriers to the other five destinations. According to the carrier it carried 550,000 passengers on its flights from the London airport in the year ending March 31, 2013.

“We have to accept the ugly reality that Gatwick simply doesn’t want smaller, regional aircraft at their airport and, with the absence of a regional aviation strategy and the government’s penalistic and ludicrous policy of charging Air Passenger Duty (APD) on both legs of a domestic flight, I’m afraid it’s inevitable that high frequency services from the UK’s regions will ultimately be squeezed out of Gatwick, as they have been from Heathrow.”

Jim French
Chairman & Chief Executive Officer, Flybe

According to Flybe Chairman and Chief Executive Officer, Jim French, the decision to withdraw from London Gatwick has been driven by the pricing regime applied by the airport’s owners to the operators of smaller, regional aircraft. In Flybe’s case this has resulted in a 102 per cent rise in fees over the last five years and has meant it has faced a significant per seat cost penalty at the airport against the operators of larger, 150+ seat aircraft, such as easyJet and British Airways parent IAG. This increase in charges, combined with Air Passenger Duty taxation, has lead Flybe to the decision its services to and from Gatwick are unsustainable in the long-term.

“No business can swallow such a massive increase in such a short period of time and it is with real regret and some anger that we have made this decision. Flybe fully appreciates the implications this will have, not only on individual passengers but also on the wider regional economies that have come to rely on the convenient lifeline connections we provide to Gatwick,” explained French

“However, we have to accept the ugly reality that Gatwick simply doesn’t want smaller, regional aircraft at their airport and, with the absence of a regional aviation strategy and the government’s penalistic and ludicrous policy of charging Air Passenger Duty (APD) on both legs of a domestic flight, I’m afraid it’s inevitable that high frequency services from the UK’s regions will ultimately be squeezed out of Gatwick, as they have been from Heathrow,” he added.

Executives at the airports served by Flybe from London Gatwick have responded to the news with disappoint but are keen to look ahead to maintain capacity into the London market. At Jersey, which is also linked to London Gatwick by British Airways and to other London airports by Channel Islands operators Aurigny Air Services and Blue Islands, Doug Bannister, Group CEO for Ports of Jersey, confirmed its route development team has been in active discussion with Flybe and other carriers about how best to accommodate our Jersey - Gatwick passengers as a result of this change. “While we are disappointed by today’s announcement we understand the rationale behind the airline’s decision,” he said.

For Newcastle International Airport the loss of Flybe’s Gatwick connection is a blow and leaves British Airways’ Heathrow service its only link to the UK capital. Speaking to The HUB, Dave Laws, Chief Executive Officer at the airport said he was confident that the North East airport could secure a new link to London, either via Gatwick or another airport. “We are in discussions with easyJet about the opportunity this presents for them to fly between Newcastle and London Gatwick which once again gives them the opportunity to connect the North East region to the capital. They are presently evaluating this opportunity as part of their planning process for summer 2014,” he said.

easyJet is already the dominant carrier at London Gatwick with a 41 per cent share of air traffic movements and 38 per cent share of capacity this summer and the additional slots will allow it to further enhance its activities from its largest international base. A spokeswoman for the carrier confirmed to The HUB that the Flybe deal will allow easyJet to provide additional frequencies on popular existing routes from Gatwick as well as add new destinations across the UK and Europe.

“easyJet will look at a range of options including the routes currently served by Flybe. easyJet’s summer 2014 timetable is announced in a few months’ time and further route information will be available at this time,” she added. The carrier already serves Belfast (albeit Belfast International), Inverness and the Isle of Man from Gatwick, while flights to Jersey and Newquay (from June 30, 2013) are offered from other London airports.

Following the completion of the slot deal, which remains subject to approval from Flybe’s shareholders and is likely to be completed in July 2013, it is unclear how Flybe will redeploy the existing capacity that serves London Gatwick. The carrier has recently deferred any future fleet and network growth by agreeing to delay the delivery of 16 new Embraer 175 regional jets from 2014 and 2015 to 2017 and 2019, in the process saving approximately £20 million in pre-delivery payment commitments in winter 2013/14. However, the reallocation of the Gatwick aircraft to other UK points to enhance connectivity from the UK’s regions is likely. In a statement to the London Stock Exchange the carrier said it concentrate future investment “at core, defensible UK bases”.

In the table below we highlight Flybe’s capacity in 2012 by network point. London Gatwick was the carrier’s fifth largest departure point with over 850,000 available seats, approximately 6.6 per cent of its total network capacity. Interestingly, Flybe’s four largest destinations are almost equal in scale – Southampton with 1.23 million annual seats, Birmingham with 1.14 million seats, Manchester with 1.10 million seats and George Best Belfast City with 1.08 million seats.