UK low-fare carrier Flybe is to open six new routes to destinations across Benelux and Northern Europe from Southend Airport after agreeing a franchising agreement with Stobart Air, the new corporate name for Irish regional carrier Aer Arann. The five year agreement will see Stobart Air operate two ATR 72-600s for Flybe from June 5, 2014 and will add to its existing franchise agreement in the UK with Loganair.

The partnership will initially cover six routes but has been structured to accommodate additional aircraft and routes if required. Flybe has yet to confirm the six routes to be served by Stobart Air but said it estimate that passenger numbers on the six routes will increase to approximately 200,000 per annum in 2015. Reservations are due to open on the Southend Airport operation from April 3, 2014.

“We are delighted to be extending the Flybe brand further into the South-East. This news is also further evidence of our commitment to providing true regional connectivity across the UK and we look forward to unveiling a major programme of new base and route development over the coming months,” said Saad Hammad, chief executive officer, Flybe.

The franchise agreement is the latest development for Stobart Group's aviation operations, which include London Southend Airport, Carlisle Lake District Airport and the recently rebranded Stobart Air (formerly Aer Arann). The partnership with Flybe is a natural extension of Stobart Air's successful franchising agreement with Aer Lingus and will see it further boost the network from London Southend, the fastest growing Scheduled airport in Europe in 2013. Flybe will be join easyJet and Aer Lingus Regional (also operated by Stobart Air) who are already serving 16 routes from the facility.

"This agreement is a further step in our development of London Southend Airport and Stobart Air. It promises to be the start of an exciting relationship with Flybe, with scope to grow the partnership in the future,” said Andrew Tinkler, chief executive officer of Stobart Air parent, Stobart Group. "Adding to the number of carriers and routes at London Southend Airport drives passenger volumes and contributes to cementing the airport as an established transport hub in the South East."

Analysis of data from OAG Schedules Analyser shows that Flybe was the largest UK domestic carrier in 2013 with a 30.8 per cent share of the total seat capacity, although it is likely to be overtaken by easyJet this year due to network changes that will take effect from the start of the summer 2014 timetable. In the international market, Flybe had just a 1.3 per cent share of capacity ranking it as the 18th largest operator from the country, although many of the routes it serves are providing key direct foreign connections from the UK’s regions.

Under its restructuring, which has seen a number of loss-making routes already cut from its network, Flybe is now looking at two key business areas for development. These are as a regional branded airline, providing scheduled services connecting passengers travelling in the regions, both on business and visiting friends and relatives, to each other and to international carriers at metropolitan airports; and as a regional “white label” provider, where Flybe provides crew under contract on a maintained and insured aircraft belonging to Flybe but operated on behalf of a third party airline (as it currently does for Finnair in Finland and Brussels Airlines in Belgium).

These two business activities offer a nice balanced approach for Flybe as they complement each other in both earnings and risk profile. The regional branded airline’s operations are both higher margin and higher risk (due to the exposure to passenger demand, fuel costs and foreign exchange rates), with the white label business’s operations lower margin and lower risk due to income generated under contracts for the provision of the white label service.

The expansion of Flybe-branded scheduled operations will primarily involve the development of new routes and bases within the UK, and are likely to occur over a 12 to 24 month timeframe. Following completion of the route rationalisation strategy, the airline plans to open a number of new routes in the next two years and is working with a number of regional airports. The airline announced last month that it had identified nine routes from its New Route Planning Selection Model, but revaled that an additional ten aircraft will be required in order to service these identified routes.

Flybe believe that “thinner” regional routes are unattractive for full service airlines and European LCCs. As a result its new route development will likely prioritise domestic routes in the UK between poorly connected catchment areas as well as the building of service density to European destinations which it believes are underserved by current carriers and where Flybe can maximise its competitive advantage of smaller aircraft that can operate from airports that have relatively short runways.