Virgin Atlantic and Others Buy Flybe, Delay Its Demise

Virgin Atlantic

I don’t know what it is about regional airline acquisitions being so complicated, but we have a new champion. Flybe is a large regional airline based in the United Kingdom, and it has been looking for a good strategy for years. It now thinks it has found one… as Virgin Atlantic. Virgin is teaming up with another regional airline and a hedge fund to save Flybe from the grave. Will it work? It’s an uphill battle.

Technically, it’s Connect Airways that will be buying Flybe, but Connect Airways is brand new and also not an airline. Instead it is a holding company that’s owned 30 percent by Virgin Atlantic Limited, 30 percent by Stobart Aviation, and 40 percent by Cyrus Capital Partners. Together, they will pay 2.8 million British pounds to take over Flybe. Part of the deal includes a 20 million pound bridge loan of which half was made available immediately. (Apparently things were getting quite desperate for Flybe.) Further, Connect will invest 80 million pounds in the operation

You know all about Virgin Atlantic, but let’s talk about the other two players. Stobart Aviation will put Stobart Air along with its sister leasing company under Connect’s ownership. Stobart Air is an airline that already flies some flights under the Flybe banner with most of the rest as Aer Lingus Regional. It made an offer for Flybe last year, but that didn’t go through. Stobart’s inclusion means we can officially call this a consolidation play. The two carriers won’t be fully integrated, however, and for good reason. Stobart has an Irish operating certificate while Flybe is in the UK. If Brexit happens, then having both becomes very important.

It’s not entirely clear to me whether Stobart will continue to operate for Aer Lingus or not, but if it does, well, the parent of Aer Lingus (also parent of BA) would be funding BA’s chief rival in London, Virgin Atlantic. There are other ties to BA, including the fact that Flybe uses BA’s Avios currency for its frequent flier program. So that’s a mess that may need to be untangled.

Then there’s Cyrus Capital. Does that sound familiar? It should, because it had one of the hedge funds that put up the cash for Virgin America when that airline started. Richard Branson must have reminded them how he made them rich on Virgin America, and twisted an arm or two to make this happen. Either that, or Cyrus was so sick of having all that money from Virgin America’s sale that it wanted to find a way to get rid of some. This seems like a good way to burn cash.

The new owners have a tall task ahead of them, especially since all indicators are that Flybe is in dire financial shape. The airline is surprisingly large with more than 50 Q400 turboprops and a handful of Embraer E-jets for bigger routes. What’s the plan for success here? We don’t know details of course, but there is a lot in the press release that would indicate how this is going to be focused. Let’s pick apart the airline’s current route map.

First and most obvious is London. Virgin Atlantic has its primary base at Heathrow with leisure operations from Gatwick. Here’s what Flybe has:

Flybe London network via Great Circle Mapper

Now I obviously use the term London lightly here. First, you’ll see Gatwick isn’t on here. All of those slots are gone or being sold off. So what’s of interest that’s left? Well, remember when Virgin started Little Red to fly to Edinburgh and Aberdeen? That was a miserable failure, but Flybe took over those slots and flies the routes with smaller airplanes. Those slots, I believe, can’t be moved to more lucrative routes, so it’s not clear that there’s a huge play here. Flybe was already taking connections from Virgin Atlantic before and had a codeshare. I’m not sure how much additional synergy there could be.

There’s also the network from London’s City airport which appeals to the business traveler. Maybe Virgin thinks it can help expand loyalty at Heathrow for long haul if it can also serve short haul from City. I don’t know, but the press release doesn’t mention City at all. So we’ll see if that’s even part of the long term plan.

Lastly, let’s not forget about Southend. That’s loosely considered a London airport, but Stobart and Flybe both like it. In fact, the quote in the press release from Stobart’s CEO said:

It will allow us to continue to work with Flybe and provides an excellent opportunity to continue to grow passenger numbers at London Southend Airport

So keep an eye on that one. Also, keep an eye on Manchester.

Flybe Manchester network via Great Circle Mapper

Flybe has an extensive network in Manchester, and the press release says that will be a focus. One of the stated benefits of the deal is to “Deliver more choice to customers by linking UK regions and Ireland to Virgin Atlantic’s extensive long-haul network through improved connectivity at Manchester Airport and London Heathrow.” Again, this was already happening before, but in Manchester, there will be the ability to move flights around and optimize connections. It doesn’t face the same slot controls as at Heathrow.

Those are the most obvious areas where Connect is likely to focus Flybe. But is there anything else of interest? Indeed there is.

Flybe Amsterdam/Paris network via Great Circle Mapper

Remember that Air France/KLM has taken a stake in Virgin Atlantic and they are working on pushing through a single Transatlantic joint venture with Delta. Flybe already is an Air France partner and has a surprisingly decent network from the UK into both Paris and Amsterdam. Other than a few ATRs flying under the Hop! brand, I don’t believe Air France/KLM has a fleet of props. Flybe could be used as a way to improve connections from smaller UK cities into the big Paris and Amsterdam hubs. There may be room for growth elsewhere too.

That leaves us with the rest of the network where I’m sure there are going to be winners and losers. There’s the impressively-dense network of flights within the British Isles (and yes, I’m lumping Jersey and Guernsey in.)

British Isles network via Great Circle Mapper

Lastly, there’s the network from the British Isles into the European Continent.


This really looks like two networks. There are the routes that seem to connect the UK into business centers in Europe, and then there are the leisure routes that go to the southern half of the Continent. I have to wonder how well those do.

What we do know is that Flybe isn’t working in its current form. What we don’t know is how Connect is going to fix that issue. It sounds like a focus on London and Manchester along with, possibly, Amsterdam and Paris could create a future for the airline…maybe. Whatever fits into the Virgin Atlantic/Air France/KLM network should be the best opportunity.

Then again, there is the cynical take here. This could just have been about keeping Flybe away from British Airways. The initial price was so cheap, it wouldn’t be hard to make that argument.

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17 comments on “Virgin Atlantic and Others Buy Flybe, Delay Its Demise

  1. It is a part of the business but the leisure routes to Southern Spain and Italy are only a very small part of Flybe’s model – they are almost all 1/2x weekly and summer only. Flybe’s bread and butter is the 45-90 minute turboprop routes that might save you 2-3hrs door to door internally in the UK, or direct flights from the regions of the UK to Europe.

    The synergies line is pretty BS, there really aren’t any to be had. Only real boost is potentially a marketing one from re branding to Virgin and good associated marketing – but in fairness to Flybe, having lived in Birmingham and Exeter, the biggest hubs after manchester afaik, they were pretty good with marketing themselves.

    1. Virgin Atlantic’s domestic operation showed clearly that the Virgin Atlantic name isn’t as strong as many would think.

  2. Great article, and yes, Flybe were in a dire state. Credit card payment providers had been withholding funds (figuring that if Flybe go under we’re going to have to refund cardholders anyway). Don’t get me wrong, a lot of this is entirely down to bad management from Flybe and they have been thrown a lifeline. This is the airline that tried to put it’s former partner, Loganair out of business, and lost both airlines a ton of money in the process.

    The British Isles map is an interesting one. Firstly, Guernsey and Jersey are part of the British Isles! So they should be on your map. Secondly, Flybe have franchise agreements with Blue Islands and Eastern Airways (not that one) for a bunch of UK and Channel Islands flights (see, Jersey and Guernsey aren’t part of the UK!) so who knows if they’ll survive. If so, you’ll have the Virgin Atlantic brand in some of the UKs smallest airports!

    As for Avios, with the commitment to a rebrand to VS I can’t see Avios sticking around for long. However, I can’t see any reason for the Aer Lingus Regional work to stop. If it makes money for IAG they won’t change it. You can even earn Star Alliance points from Aer Lingus via United, and BA Avios and Tier Points on Emirates via Qantas. So I don’t think IAG will necessarily be worried about who is flying the plane.

    I wonder what Loganair and bmi regional will make of this though?

    1. Great analysis, Cranky, and additional insight, Billy. Beyond everything above that’s been stated, what completely boggled by mind is that there is YET another “London” airport in Southend. I’ve probably flown into and out of London 4 or 5 dozen times in my life (including LHR, LGW, LCY, LTN and STN) and I never knew that Southend even existed. Not sure how I missed an airport that caters to over 1MM PAX a year. Judging by the cities served, I can see why it wasn’t on my radar. Despite how the Brits complain about their infrastructure and National Rail Service, with 5 trains an hour to London, even some obscure airport that I’ve never heard of still has better connectivity than Manhattan to any of it’s surrounding airports.

      1. Cranky, Stobart’s parent owns Southend airport. (Stobart is a good size haulage and logistics company with road and rail fleets.) So I could see the leisure network being moved to focus there.

        And then as you say those Heathrow slots are limited to ex-BMI routes at the moment but not for much longer. So this is a long-term move to grab those.
        And in the meantime, as you say this allows Delta (who effectively will be putting up half the Virgin investment) and their transatlantic jv partners to flow more traffic via Paris and Amsterdam.

      2. Southend Airport is fantastic. Imagine London City but quieter!

        London Southend totally works but don’t get me started on London Oxford…

    2. Billy – I hear it’s somewhat controversial whether Jersey and Guernsey are considered the British Isles or not. (Then again, the Irish will tell you the use of “British Isles” is controversial as well!)

      1. British Isles is a physical description so perfectly acceptable!

        Fun Fact: there is an island group south of Jersey called Les Minquiers. At high tide they are submerged. At low tide the exposed land is bigger than Jersey!

  3. Vis a vis Hop, there are already some indications of what Ben Smith intends to do there, saying flights will be concentrated in Paris CDG/Orly with Hop’s larger CRJ-1000 and Embraer 190 jets. Air France/KLM subsidiary Transavia will be built up to take over service in some regional markets, while others may be discontinued:

    Meanwhile, there’s a new article suggesting that Air France may be slot sitting at London Heathrow, which is also interesting to these developments:

  4. So, does this get another notch in Delta’s belt?  Keeps getting more interesting by the day

    Peter M McDevittManaging Director MACWorld Trade Group / FiDiVi USA +1 336 998 5757

  5. If Stobart is putting its assets into Connect and gets only 30% of the new (larger) airline, cd it also be either a way for Stobart to get some cash-out (effectively “selling” to Connect) or for Cyrus to get part of Stobart (through its 40% of Connect).

  6. It seems likely that while routes at Heathrow, Manchester and Southend will be preserved (possibly even increased), everything else will be looked at very carefully for profitability and routes cut quickly if they do not perform. If Delta or AF-KL is interested in some Embraer 175 or Dash Q400 aircraft with between 75 and 90 seats, there’s quite a few suddenly available now !

    Some of the smaller more marginal bases are probably condemned already – I cannot see how Virgin or Stobart would have any interest in routes from places like Doncaster.
    The staff at head office in Exeter are presumably also rather worried by now.

  7. Do you think VS/DL/KL/AF could be looking to make MAN into a hub for connecting smaller European cities to the US?

    1. Jude – I doubt it. That’s what Amsterdam already does quite well and CDG isn’t bad either. I think MAN will remain mostly local the way it is now, but if they can add connections to boost service in some markets then it can’t hurt.

  8. This reminds me of the F9/YX merger where I thought “there must be some brilliant plan I’m just not seeing”. Turns out: newp!

  9. It looks like the article was written before the latest developments which raise significant ethical questions regarding the sale.

    1. The Board of Flybe has switched their London Stock Exchange listing from premium to Standard. What that means is the Board now does not need to go to Shareholders for approval for sales of significant assets. Connect Air is now buying the trading assets of Flybe rather than the whole company. This leaves Flybe shareholders with a worthless shell.
    2. The price was set at 1p which was significantly lower than the market price on the previous day of 16p. So now there are accusations of creating a false market in that the Directors were covering things up.
    3. Hoskings Partners, with a 19% share, has now initiated the first steps to a legal challenge.

    This means things could get very interesting indeed, and if a legal challenge goes forward might force the bidders to postpone or withdraw the deal. After all the CEO and CFO of Flybe were to transfer the ‘Newco’.

    But is no mistake, Flybe has been mismanaged. The stupid lease costs on the Embraer E190s one example of the drip-drip in Pounds out the door. From an initial listing of value of GB£240 Million in 10 years to not much more than the equivalent amount in Vietnamese Dong during a Bull Market says it all.

    And I still need a flight from London to Cornwall when I go to the UK!

    Kung Hei Fat Choy!


  10. The European Commission has finally approved the acquisition of Flybe by Connect Airways but it comes with some strings…

    The EC said the takeover would lead to “quasi-monopolies on two direct European routes, namely Birmingham-Amsterdam and Birmingham-Paris.” It ruled the airline must therefore release five daily slot pairs at Amsterdam Schiphol and three daily slot pairs at Paris Charles de Gaulle. These must be released to competing airlines that want to fly the routes.

    It’ll be interesting to see who the AMS & CDG to BHX slots will appeal to so definitely one to watch.

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