Capital Markets Day

Capital Markets Day
28 November 2014
Agenda
11:00
11:15
12.00
12:20
13:05
13:50
14:10
Welcome by Saad Hammad
Revenue generation and capacity discipline
Lunch served
Breakout sessions
Breakout sessions
Conclusion - Saad Hammad and Philip de Klerk
Depart for airport
NB Presentations will be shown in rotation with split groups
Breakout session 1 – White Label
Room 104
Breakout session 2 – Financial discipline
Room 102
Summary
• Operationally strong UK core business
– Sustainable competitive positioning in attractive niche, leveraging
significant scale
– Right aircraft, right routes
– Fresh team for next phase of development
– Analytics to improve customer delivery
– Cultural transformation under way
• Emerging White Label business with good potential
• Remaining legacy issue being addressed (E195)
• Three year turnaround progressing well but more to do
• Disciplined approach to deliver profitable growth under way
Today’s key focus is on our twin engine growth strategy of branded
expansion (Commercial) and White Label
Our business model
WHAT WE DO
• Branded airline in UK and
white label regional
services in Europe
HOW WE DO IT
• Purple people
• Safe operations
• Right aircraft on right routes
• Flying thin regional
routes, unservable by
mainstream airlines with
larger aircraft and seat
capacity
• Connecting regional
customers
• Faster than road and rail,
which are the principal
alternatives
• Translates into timesaving access to the
world from the regions
Predominantly turboprops
Route assessment model
• Neighbourhood airports, often
with short runways
• High frequency schedule
establishes local preference
• High punctuality, good service
• Codeshares to maximise
access to outside world
• Competitive costs =
competitive pricing vs.
alternatives
• Best in class White Label
solution delivery
VALUE CREATION
• The four disciplines:
Capital allocation
Revenue/customer
Cost
Organisation
• Margin expansion
• Improved asset turn
• Network development
Improved cash and
shareholder returns
Flybe does not compete with low cost carriers,
flag carriers or mid-haul leisure airlines
UK and select European airlines by seat capacity, sector length and flight density
250
Ryanair
200
LH
Monarch
AF-KLM
Ave. seats
per flight
BA
150
Jet2
easyJet
Flybe
100
Cityjet
50
Wideroe
Regional airlines
Low cost carriers
Leisure airlines
Flag carriers
BA
Cityflyer
Air Nostrum
Hop
BMI Regional
Aurigny
Eastern
Blue
Island
Bubble size =
10m annual seat capacity
0
0
250
500
750
Source: 2013 OAG, ICF SH&E Analysis
1000
1250
1500
1750
2000
2250
2500
Sector length (miles)
Thinner routes can only be served economically
by regional aircraft
Minimum annual passengers required per route for a daily frequency
Flybe analysis of minimum route thickness by aircraft type for a daily frequency
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Q400
E175
E195
A319
A320
B737
Aircraft type
Note: Analysis assumes: 70% Load Factor on Q400, E175 and E195, 89% on A319 and A320 and 85% on B737-800
Source: Flybe analysis
Strong UK regional position
100%
Strong presence at
regional airports
Leader in UK
regional travel
Flybe passenger sector share
Oct13-Sep14
Airline share of passengers in regional
domestic sector Oct13-Sep14
92%
60%
90%
80%
50%
48%
67%
70%
40%
59%
60%
31%
50%
30%
40%
16%
20%
30%
20%
20%
10%
10%
9%
7%
GLA
EDI
MAN
10%
0%
5%
0%
SOU
EXT
BHD
BHX
Flybe
Frequency No. 1 No. 1 No. 1 No. 1 No. 2 No. 2 No. 1
share
Flybe
1.5m 0.5m 1.4m 1.7m 0.7m
passengers
Source: CAA data Oct 2013 - Sep 2014
SOU
EXT
easyJet
Loganair
Other
Source: CAA data Oct 2013 - Sep 2014
0.9m 1.5m
Southampton
Exeter
BHD
BHX
Belfast City
Birmingham
GLA
EDI
Glasgow
Edinburgh
MAN Manchester
Leveraging significant scale
Regional aircraft (<120 seats) in Europe by airline (2014)
Source: ACAS as at 18 November 2014
Attractive niche market
•
Europe has the world’s largest regional
airline market
-
Annual seats flown under 350 miles 2014
Over 75m seats are flown on sectors
under 350 miles
90
80
78
70
70
Flybe’s aircraft and infrastructure are
well suited to these short sectors
-
c80% of Flybe’s routes are on sectors
under 350 miles
60
Seats (m)
•
62
50
40
30
23
LCCs moving up gauge potentially
opens up more regional routes
-
Limited investment in road and rail
Source: ERA 2013, OAG Oct 2014Schedule used as baseline
7
Middle East
-
S&C America
and Carribean
Network carriers are restructuring
7
0
North America
-
10
Far East &
Australasia
The European regional market is
opening up
Europe
•
Africa
20
Legacy issues are being addressed; one to go
Unsustainable
cost base
Weak balance
sheet
•
£47m delivered in
2013/14
•
£150m net raised
c30% headcount
reduction (c1100FTEs)
Divisions
removed
6 smaller bases
closed
30 routes culled
25 routes
adjusted
•
£18.5m of
restricted cash
released in H1
FY15
•
•
•
•
•
•
On track to
deliver
incremental
£24m in 2014/15
Unprofitable
Finland joint
Sub-optimal fleet
venture
•
Strategic services
agreement to
upgrade Q400s
•
Terminated 2010
Embraer order for
24 E175 jets &
secured
attractively priced
Q400s with
deliveries starting
summer 2015
•
Dispose of 14
surplus E195s
- 5 hand-backs
secured
- Project
Blackbird for
remaining nine
E195s
•
•
•
Exit from Finland
JV agreed
through sale to
Finnair
Escalating losses
in scheduled
flying more than
offset profit from
White Label
activity
We are in the
White Label
business not the
JV or risk
business
Cultural transformation under way
Exeter
Manchester
Edinburgh
Glasgow
Belfast
Southampton
Birmingham
The three year turnaround continues: Highlights
Saad Hammad
joins as CEO
Aug 2013
Jan
2013
Phase 1
• Cost
reductions
May
2013
Nov
2013
Philip de Klerk
joins as CFO
Aug 2014
Immediate Actions
• Drive cash generation
• Reduce costs further
• Optimise configuration
• Improve
commercialisation
Phase 2
Capital Raise
• Cost reductions
• £150m net
• 16 E175 deferrals
• Sale of LGW slots
Nov
2014
Jul-Sept
2014
March
2014
Fleet Agreements
• Bombardier Q400
fleet upgrade
• Embraer/Republic
deal
UK Rebirth
• Brand relaunch
• 11 new routes
• London City
announced
Finland
• JV exit
2015-2016
More to do on:
• Fleet
• Growth
• IT
• Operations
• Management upgrading
• Revenue management
• Performance
management
UK Growth Platforms
• 2 new bases, 23 new routes
• New codeshares
• New partnerships
SAS White Label
Four disciplines to capture profitable growth
Capacity
Discipline
• Right aircraft
on right routes
Revenue
Discipline
• Relentless
customer
focus
• Improved
aircraft
utilisation
• Route
assessment
model
• Targeted
growth
• On-time
performance
• Selective
White Label
development
Cost
Discipline
• Delivery on
cost projects
• Unit cost
performance
• Optimise
productivity
Organisation
Discipline
• Purple safety
• Right people
in right roles
• The Purple
Way
• Make Flybe a
great place to
work
Right team to drive business
Infusion of new talent
• Chairman, CEO
• RemCo and Safety Chairs, CFO, Co Sec
• Replaced 40 of our top 50 managers
– Hires across commercial, operations, finance and procurement
– Real depth of consumer and travel / aviation experience
new talent across the business
Simon Laffin - Chairman
Annelie Carver – Co Sec
Saad Hammad - CEO
Liz McMeikan - NED
Philip de Klerk - CFO
Sir Timo Anderson - NED
Capital Markets Day - Revenue Generation and Capacity Discipline
Paul Simmons, Ronnie Matheson, Paris Anatolitis, Ben Burge
28 November 2014
Commercial approach
A rigorous approach to driving return on capital
• Strong network, new route and basing decision making process
Focus on day-to-day trading
• Route performance managers
• Internet traffic and conversion (funnel) analysis
• Pricing “traders” actively managing at a flight level
• Focus on yield management and yield development
Clear call to action
• Core proposition: faster and cheaper than the alternative mode of travel
(road or rail); more convenient than other airlines
• Secondary proposition: regions to the world
• Marketing investment guided by econometrics
Key Metrics
• Revenue per seat (RPS)
• Contribution per block hour (CPBH)
• Utilisation
• Load factor
We are omni-channel but maximise
throughput via Flybe.com
% of
Revenue
(2014)
Flybe.com
63%
77%
Flybe.com (trade sales)
Flybe
14%
Managed
trade
GDS
TMCs
Call centre
OTAs
23%
Nominal
We measure our funnel conversion on daily basis
We constantly “A/B” test small elements on the website and booking
funnel to optimise conversion
Confirmation from home page (Flybe UK)
Example: 19 - 25 November 2013 vs. 2014
Home
61%
Flight
search
30%
Passenger
details
55%
Extras
99%
Payment
93%
Wait
98%
Confirmation
from Home
Page
11.2%
Conversion rate
+1.7ppts vs. last year
Our relative web performance has been improving
We have moved from 7th/8th position to 4th/5th over the last 6 months
Share of website hits: May 2014
Our
ambition
is to
achieve
6%
Share of website hits: Oct/Nov 2014
Source: Hitwise
Customer satisfaction is measured
consistently across the business
Booking
64%
Departure
59%
Consideration
74%
Check in
62%
In flight
60%
Advocacy
48%
Bag drop
54%
Arrival
62%
Flybe people
74%
Overall customer satisfaction
Source: Flybe CSAT survey
1-19 October 2014
The Flybe customer tends to be
older and more affluent
Flybe customer profile 2014 vs. 2006
Age group
Gender
Social grade
Reason for travel
Sector split
Customer type
Customers p/booking
We customise schedule and message
depending on route type
Type of competition
Routes
Sector capacity
Directly by air
10%
25%
Over land and water
(road, rail, ferry, mixed
mode)
90%
75%
Highest amount of frequency
per route to provide attractive
schedule
• Emphasise convenience
Lower frequency per route
since surface alternatives are
slowest and cumbersome
• Emphasise speed
and price
We prioritise our media spend
on return by channel
Sales per £1
investment
Digital
£24
National Press
£4
Regional Press
£4
Radio
£10
TV Sponsorship
£8
TV
£3
OOH (posters)
£4
Highest priority
Digital channels achieve highest ROI but traditional media
is required to drive brand saliency
Source: Starcom Media Econometric Modelling
Targeting growth in three areas
New UK bases
New routes
• 11 new routes in S14; 23 in
W15 incl. seven new routes to
London City
• Build London footholds e.g.
London City, Stansted,
Southend bypassing the big
hubs
•
UK infill
 Return to Aberdeen,
creating up to 100 jobs
 Bournemouth to
complement/back-up
Southampton
New territories
•
Mainland Europe
•
Shortlisted airports to bid for
one new base planned every
year for next 3 years
• Prioritise European
destinations
 Secondary cities
 Short-runway airports
• Expand connectivity via
codeshares esp. at Manchester
and Birmingham
• Flybe Shuttle launched:
Aberdeen-Leeds-SouthamptonJersey
• 50% of UK domestic regional
routes, but less than 15% of
UK regions to Europe routes
Underlying principles – capital deployment
1.
2.
3.
Focus new capacity on existing successful routes
Look at Join The Dot opportunities connecting existing
successful network points
Review new routes and new bases
We plan to build further our ancillary revenue
Flybe is ranked number 10 globally in terms of ancillary
revenue as percentage of total revenue
Airline
Ancillary revenue
as % of total
passenger
revenue
Ancillary revenue
per passenger (£)
Flybe
15%
£12
Allegiant
32%
£27
Jet2
27%
£29
Ryanair
22%
£11
easyJet
21%
£12
Alaska
11%
£13
Source: Airline’s most recent annual reports, IdeaWorksCompany “Top Ancillary Revenue” report, ICF SH&E Analysis
Improvement by:
• Yield managing
flight related
ancillaries
• New non-flight
related ancillaries
Summary
• We have a good understanding of our customers
• The vast bulk of our customers come via the website
• We are managing to attract and convert customers better than before:
― Rigorous approach
― Able to identify opportunity
― Fine tuning media spend in line with sales return
• Early days but basics in place
Capital Markets Day
Network Planning
Ben Burge
Director of Network Planning
Network Planning
Activities
-
Fleet assignment
Seasonal schedule build
New route and base assessment
Guiding principles
-
Maximise utilisation of aircraft within operational constraints
Utilise existing gaps, replace poor performers first, then grow with new aircraft
Offer route network consistent with our brand mission – regional connectivity
Tools
-
Route Assessment model (RAM) – for new routes and bases
Schedule rules – for route frequency and shape
Route profitability results – to review and replace/augment poor/good performers
Schedule plan - to ensure maximum utilisation
Flybe is predominantly a UK domestic carrier
70% of Flybe’s capacity is on domestic UK routes
Flybe international vs. domestic
seat capacity (Nov 2014)
Republic of Ireland
18% of Int’l Seats
International
30%
UK
Amsterdam
22% of Int’l
Seats
France
22% of Int’l Seats
Germany
23% of Int’l Seats
Italy
5% of Int’l Seats
Spain & Portugal
2% of Int’l Seats
Source: OAG Nov 2014 and Flybe analysis based on IATA Winter 2014 schedule
Domestic
70%
UK airport coverage
2014-15
UK airports
67
Flybe
57%
BA
18%
easyJet
25%
Ryanair
24%
Our scheduling rules follow a
rigid, consistent and logical process
When we schedule new routes, it is imperative to provide the RIGHT schedule
On markets competed with other airlines
• More frequency than other airlines (unless a codeshare partner such as AF)
• Minimum 2-3 times daily and/or 150% extra frequency (whichever greater)
• Aim is to offer much better connectivity/convenience market to market than
competition
On uncompeted markets over 100k annual passengers
• Minimum of 2-3 times daily frequency for effective business itinerates
On markets under 100k annual passengers but business purpose
• Minimum of 2 times daily frequency to allow for decent day return journeys
• E.g. NQY-LGW or BHX-ABZ
On markets under 100k but for leisure purpose
• Single daily or part-week as required to fit market size
• Utilise short runway and other “convenient” airports
• Niche leisure markets in preference to mass market routes
Prioritise short runway airports
Route development process
is far reaching but robust
• Network development has been far reaching
― 430 routes assessed
• 11 S14 routes launched
― Performed to RAM projections
• 18 core routes launched W14/15
Stage
Details
1st stage
Initial look
2nd stage
Cost and revenue evaluation
3rd stage
Detailed recommendation
Proposal to launch Business case for sign off
Launched
• 5 new summer routes have continued into
winter
Seasonal
Core
Number
430
254
73
35
29
Proportion
59%
17%
8%
7%
Stages of route forecast – each route must
pass test
1st stage - Initial route idea and check consistent with range and fit
Base reinforcement, competitor change, gap in market or strategic growth
Quick
analysis
2nd stage – Range, cost and revenue analysis
Range + Payload analysis; costing of operation, load factor and yield sensitivity
If has
potential
3rd stage – Full costing and revenue analysis
Full operational check; discussion/deals with airports and suppliers and run “RAM”
Where the
route return
is positive
4th stage – Proposal for launch submitted to senior management
Operational, finance and CFO/CEO sign off using “RAM” and checklists
Route launch
Data sources include – OAG, QL2 fare analysis, CAA, Surveys and
BSP/MIDT
Route
Route
performance
performance
checked
checked
against
against
original
originalFAM
for
Route
integrity
Assessment
Model (RAM)
for integrity
Route Assessment Model (RAM)
Rolling list of potential new routes that have reached “Stage 2”
Strategic fit, join the dots, airport costs, sector length and schedule fit
Data loaded into model
Market size
and potential
(catchment
and wealth)
Airports and
capacity
offered from
UK
(valid region)
Competitive
market share
and fares
+ seasonality
Route
performance
Market
checked
“value” and
against
revenue
original
FAMpool
for integrity
Revenue steal assumptions
based on airline performance
+ market
Reference and benchmarking of route forecast:
Against routes from same UK airport and to/from same “end” destination
– fare, Load factor and profit
Profitability determined from
route operations costs
Launch decision based on RAM output
Year 1 and Year 2/3 (mature) profitability of route: Revenue – variable costs – fixed costs
Seasonality shows how summer and winter performance compares
The model provides a detailed analysis of each
new route potential on one slide:
AAA-BBB
Frequency
Seasonality
Aircraft
Block time
x2 daily
Annual
CA & Airport
60' pop.
GDP/cap
(Apt+APD)
AAA
2,400,000
£24,000
£12.00
BBB
550,000
AAA
£1,200
£1,050
Market O&D pax
Market Pax/year OD+CX
836,000
Competition
Airport Pair
Period
BE
AAA-BBB
U2
LGW-BBB
BA
LHR-BBB
FR
STN-BBB
FR
LTN-BBB
U2
BRS-BBB
Annual
Annual
Year Round
Year Round
Year Round
Summer
Seats
Frequency
A/C Size
Load Factor
Actual - Mature fare
Revenue after BE (000s)
Revenue change (000s)
DRP FFC after exit
113,568
372,600
329,347
275,184
247,666
74,160
x2 daily
x3 daily
x3 daily
x2 daily
x2 daily
daily
capacity
78
75%
£59
£4,259
£5,025
180
80%
£50
£12,881
-£2,500
156
75%
£88
£21,736
-£500
189
86%
£38
£8,993
-
189
89%
£38
£8,376
£0
180
82%
£55
£3,345
£0
15%
revenue
Proxy Flybe routes
Adj. FIFA
CPBH (FY13) - FY
Act. FIFA - Freq (FY13)
Seasonality
Maturity
Block time
LF
# carriers (FY13)
Directionality (% apt A)
CCC-BBB
£79
1,450
x2 daily
DDD-BBB
£73
1,316
x3 daily
Annual
Annual
Pre-2007
Pre-2007
01:15
01:30
78%
1
78% (CCC)
80%
2
74% (DDD)
DH4
1h15
Base fare Y1
£50
+/- £1 fare
BBB
£1,400
£1,340
Stimulation Rev pool (RP)
LGW
Actual RP FFC
area
£59.00
Diluted RP FFC
25%
£55.00
£1,259
FIFA Y1
£61
CPBH +/-
£63
CPBH S
£1,100
£1,350
£1,512
Proxy avg FIFA Ticket RPS Y1
£66
£38
This is dependent on
competitive capacity, demand
and fares charged
Unless a warm route there is
usually a discount of c.85%
fare to factor in maturity
Performance of similar routes
from each end provides
benchmark what equivalent
Flybe routes achieve
There is a target contribution
for a route to hit. This table
shows the fare gap from
reaching this in year 1,2,3.
Tot. Contr. Cannibalisation
£1,900,000
None
£2,500,000
None
£2,650,000
None
Tot. Contr. +/- £82,000
Flybe forecast is evaluated
using “revenue steal” from an
appropriate region of the UK
e.g. LGW/LHR area for SOU
Revenue steal from existing
operators and possible
stimulation
Fare / frequency / seasonality choices driven by
Double daily to attract business users and compete with
London area and streal from competition
Fares determined from revenue steal model and referenced to
existing similar routes
Year round due competition
Year - ROCE target
FIFA
Cost gap/pax
CPBH
CPBH W
Year 1 - £XXXX
£55
-£7.00
£909
£700
Year 2 - £YYYY
£63
£1.50
£1,221
£850
Year 3 - £ZZZZ
£65
£3.50
£1,390
£901
Comments
Year 2 & 3 maturity to come through yield development - 85% of mature fare in year 1
Part charter
Sensitivity
£32,000
£19.00
CY13 CPBH
Base - YR
Airport - YR
Costs rundate
Fuel Cost
Screenshot
Start season
Nov-14
938
18/11/2014
S15
Summary
•
The network is continually optimised – all routes and aircraft must
contribute
•
Route network reflects our core strategy – “connecting the
regions”
•
Route frequency and structure must offer a better product than
competition
–
•
More frequency, better timings or quicker/cheaper journey
Each new route must pass a rigorous selection process
–
Four key stages and signed off by senior management
–
Route Assessment Model is a key decision-making aid
Capital Markets Day
Route Performance
Paris Anatolitis
Director of Route Performance
We monitor performance by route every week
Route
AAABBB
ZZZYYY
AAACCC
GGGFFF
YYYAAA
ZZZEEE
GGGIII
RRRBBB
SSSQQQ
BBBVVV
DDDKKK
Total
Revenue per Seat
TY
v Plan
v LY
58.36
-2%
0%
35.58
1%
0%
34.94
17%
7%
35.73
-1%
0%
68.56
4%
26%
60.16
2%
0%
32.21
4%
-15%
67.82
11%
28%
47.28
3%
7%
31.73
6%
6%
47.38
-12%
7%
45.41
2%
6%
TY
81%
70%
73%
73%
87%
80%
74%
89%
83%
67%
69%
73%
Example Month - Not Real Data
Load Factor
Contribution per Block Hour
v Plan
v LY
TY
v Plan
-5%
13%
2,434
5%
12%
0%
497
10%
-3%
1%
2,446
26%
2%
12%
916
-2%
9%
22%
1,863
10%
7%
0%
519
16%
14%
4%
1,018
11%
-4%
6%
2,899
19%
5%
18%
1,241
7%
-13%
-8%
1,583
12%
-21%
-6%
1,771
-20%
0%
6%
1,427
7%
Revenue
v Plan
v LY
9%
84%
1%
0%
17%
33%
-12%
-23%
4%
-20%
-1%
0%
4%
33%
11%
16%
3%
12%
2%
11%
-13%
-4%
0%
11%
Capacity
v Plan
v LY
11%
84%
0%
0%
0%
24%
-11%
-24%
0%
-36%
-3%
0%
0%
56%
0%
-9%
0%
5%
-4%
4%
-2%
-10%
-5%
1%
• Route KPIs monitored every week, to determine over- or underperformance and causality
• Trading meeting every Tuesday to drive actions for e.g. marketing,
revenue management, cost management by Friday
Source: Flybe
Route performance is about revenue as well as cost
• Quarterly reviews of airports’ cost performance
• Marketing support from tourist boards
• Confirmed PSO and route connectivity funds
• Long term airport contracts, securing:
- Certainty in costs
- Growth incentives
- Volume rebates
Deploying fleet on optimal routes
and sector lengths
Revenue / seat hour vs. cost / seat hour
Routes by sector length and revenue/variable cost
Sector length in hours
Source: Flybe
Rolling 12 months ending Oct 14
Constantly looking which routes
contribute their fair share
Routes by proportion of capacity and network contribution
6.00%
% of network contribution
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
-1.00%
% of network capacity
Source: Flybe
Rolling 12 months ending Oct 14
4.00%
We act on loss making routes
Route contribution
Route Contribution & Profit / Loss
•
•
75% actioned (culled,
frequency reduction, timing
change)
Balance improving and
includes new routes
Contribution
Profit/Loss
Source: Flybe
Rolling 12 months ending Oct 14
Summary
• Tracking route KPIs weekly
• Managing revenue as well as costs
• Deploying fleet on optimal routes and sector lengths
• Constantly looking which routes contribute their fair share
• Pushing for route performance across the network
• Taking decisive actions
Capital Markets Day
Revenue Management
Ronnie Matheson
Director of Revenue Management
Revenue management - Past
• Yield driven strategy
– Low load factor flights with high yields mid week
– High load factor flights with low yields on weekends
• Perception that the market would not respond to price
• Pricing strategy unclear
• Revenue management team in need of guidance and upskilling
• Revenue management system capability not used to maximum output e.g.
optimisation not switched on
Revenue management - Progress
Moved to volume based strategy delivering 77.2% load factor (+8.6ppts vly)
Revenue management - Progress
A clear shift in our Load Factor distribution demonstrates that demand can
be stimulated when pricing made more attractive
Flybe’s load factor is highest globally
for a regional airline
Load factor by regional airline (2013-14)
Source: As reported by Airlines in their most recent annual reports (2013-14), CAA Airline Statistics, ICF SH&E Analysis
Flybe LF is 12 months to September 2014
Revenue management - Progress
Pricing and inventory strategy reviewed
• Growth early in life of flight > 21 days before departure
• Yield focus inside 21 days before departure
•
gjks
Revenue management - Future
Introduce yield development
– Research and development arm of revenue management (price/inventory testing)
External expertise
– Michael Heenan – head of yield development (ex easyJet)
– Barry Oaten – head of trading (ex Monarch)
New RM system: AirRM by Revenue Management Systems
– Used by Ryanair, Air Asia and 40 other airlines worldwide
– RASK Improvement in Year 1: Ryanair 10% AirAsia 5%
– Allow trader team to work efficiently and apply consistent inventory strategy across
network
– Superior business analytics – including email of reports and potential to replace
existing reporting tools
– Flexibility in the revenue management model (forecast, business rules, manual or
combinations)
– User analytics to improve and develop our revenue traders’ performance
– Supports further de-averaging through introduction of fare bands by flight
Revenue management - Future
De-averaging: We aim to price on the demand curve
Price
Consumer Surplus
P2
Offer the right price,
to the right customer,
at the right time
De-average further by:
• Setting fare bands
by flight rather than
by route
P1
V2
V1
Volume on Flight X
Summary
• We have engineered a shift from yield to load strategy with success in
driving both volume and unit revenue
• Flybe’s load factor is now the highest globally for a regional airline
• We are aiming to capture both price and time sensitive customers
• We are introducing yield development (R&D) and new systems to price
on the demand curve and optimise revenue capture
Capital Markets Day – Cost and Capital Discipline
Philip de Klerk
28 November 2014
Long term objectives
3 – 5 years
•
Strength
Strong balance sheet
•
•
Target to develop a new base each year, along
with development of new routes at existing bases
Development of strategic R&D, incl. Flybe Shuttle
White Label flying expansion
•
Ambition is one new contract every year
Reduce fleet ownership costs
•
Target to increase aircraft ownership as funds
and market conditions allow
Improve productivity
•
•
Implementation of new ERP and other systems
Evaluate outsourcing opportunities
Enhance service to customers
•
•
•
On time performance
End to end service approach
Partnerships that deliver value
Branded scheduled
commercial expansion
Profitable
growth
•
Aim to have restricted cash only for aircraft
deposits
Sufficient short term cash and cash equivalents
Capital Markets Day
Cash and Balance Sheet
Restricted cash
Restricted cash
Financial guarantees
Security deposits for aircraft
Total
Mar-14
Oct-14
Mar-15*
£m
£m
£m
31.3
15.0
5.0
7.6
7.1
7.1
38.9
22.1
12.1
(*) : estimated restricted cash as per 12th November
• Restricted cash significantly reduced due to strengthening of the
balance sheet.
• We have targeted a further reduction in restricted cash of £10m by the
end of this financial year.
• Security deposits might vary depending on new aircraft deals
Strong balance sheet since capital raise
Aircraft
September
2014
March
2014
change
£m
£m
£m
169.9
147.0
22.9
23.1
23.6
(0.5)
-
12.4
(12.4)
Net funds
72.0
116.9
(44.9)
Derivative financial instruments
(2.0)
(7.6)
5.6
(89.5)
(105.4)
15.9
4.9
4.5
0.4
(5.3)
2.7
(8.0)
Other property, plant and equipment
Interest in joint venture
Other working capital - net
Deferred tax
Other non-current assets and liabilities
Net assets and shareholders' funds
173.1
194.1
(21.0)
Total assets
517.2
548.0
(30.8)
(344.1)
(353.9)
9.8
173.1
194.1
(21.0)
Total liabilities
Net assets and shareholders' funds
• The reduction in net assets is largely due to the write down of the joint venture (£12m)
and the EU261 flight delay provision (£6m).
Capital Markets Day
Fleet and Ownership Cost
Propeller aircraft are dominant
for short haul regionals
Aircraft size, sector length and seat capacity for Flybe and
comparator airlines
140
Jet
Prop
120
Ave seats per sector
Mix
Flybe
100
BA Cityflyer
Air Nostrum
Cityjet
80
Horizon Air
60
Porter
HOP!
Air Canada Jazz
Wideroe
40
bmi regional
Eastern
Aurigny
Rex
Blue Islands
Silver Airways
20
Cape Air
0
0
50
100
150
200
250
300
350
Ave sector length (miles)
Source: 2013, OAG, ICF SH&E Analysis
400
450
500
Jets provide range but higher unit costs
if they do not fill seats
Cost Versus Range For Q400 vs. Competitor Aircraft
(Cost Per Seat Relative To Q400 at 750km)
220
Unit cost Index
vs. Q400
with only
78 seats sold
200
B737-800
180
A319
A320
160
E195
140
E175
120
100
Q400
80
60
0
= 78 seat aircraft
Note: Analysis assumes: 750km stage length
Source: Flybe analysis
1,000
2,000
3,000
4,000
5,000
6,000
Maximum range (km)
Q400 benefits
• Speed
• Power for short runways
• Economics
• Carbon footprint
• Lower noise
Fleet: legacy and future
• Q400 (78 seats): 45 in our fleet (we lease 38, own 7)
– Bombardier funded Q400 modification programme, transforming our Q400 fleet into one of
the most operationally efficient regional fleets in the world
– 24 Q400 subleased from Republic; phased deliveries through to December 2017
– Potential ‘new metal’
• E175 (88 seats): 11 in our fleet (we lease 4, own 7)
– Removed $750m of future liabilities with Embraer. The 2010 order for 20 new E175 cancelled
and transferred to Republic in exchange for the 24 Q400
– Retained four E175 options
• E195 (118 seats): 14 in our fleet (all leased)
– We announced in 2013 that these E195 jets are not suitable for our strategy
– We are in the process of handing back five early to lessors: three have left in November and
two will leave before the end of the fiscal year.
– Project Blackbird: exit solution for remaining nine E195s
• Active dialogue continues with a number of airlines concerning individual aircraft and package
transactions
• Exit timing and costs will be dependent on the terms of each specific transaction
Flybe UK scheduled flying - Fleet
• Fleet configuration at year end – committed fleet
Committed fleet
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
E175
11
11
11
11
11
E195
8
3
Q400
38
43
Q400 - Republic
Total at year end
-
57
• Options to increase the fleet:
57
-
-
-
43
43
35
8
16
24
62
70
70
– Extension of leases (8 handbacks 2017/18)
– Possible use of Q400 currently deployed for contract flying (2 Brussels airlines)
– New aircraft
Flybe UK Scheduled Flying – Seat capacity
Average seat capacity
Committed seats, million
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
E175 (88)
2.2
2.1
2.2
2.2
2.2
E195 (118)
2.2
0.8
-
-
-
Q400 (78)
6.8
7.3
7.7
7.7
6.9
Q400 - Republic (74)
-
-
0.7
2.0
3.4
10.2
10.5
11.9
12.5
(8.2)%
3.2 %
12.8 %
5.4 %
Total at year end
11.1
% growth
• Opportunities to increase seat capacity:
–
–
–
–
Use of some E195s in Summer 15
Aircraft utilisation
Extension of leases
New aircraft
Fleet ownership of Flybe UK
Current ownership mix: 20% owned (excluding E195 - 25% owned)
Cost differential is at least £240k per year in favour of owned aircraft,
though owned aircraft have a residual value risk
Target to increase aircraft ownership as funds and market conditions
allow
Split of H1 aircraft rental charges by aircraft type:
FY15 H1
£m
Q400
(23.1)
E195
(13.1)
E175
(3.7)
Other
(0.9)
Aircraft rental
(40.8)
Capital Markets Day
Cost Saving and Cost Per Seat
Strong core UK business: cost savings on track
• Cost savings of £47m delivered in FY14
• On track with £24m expected in FY15 as previously announced
80
£71m
70
60
26
£47m
Immediate actions
Phase 2 benef its
£m
50
7
40
10
Phase 1 benef its
15
30
20
30
30
2013/14
2014/15
10
£3m
0
2012/13
Good progress on headcount, procurement and other cost saving initiatives
Cost sensitivity analysis
Sensitivity in operating cost to certain variables :
March 2014
2.5% movement in seats (capacity)
Increase in cost
Minimum
Maximum
1.5 %
2.5 %
2.5ppt movement in load factor
-
1.0 %
2.5% movement in effective fuel price
-
1.0 %
2.5% movement in fixed costs
-
0.5 %
Note:
- Based on March 2014 operating cost of £599.9m
- Movement in seats assumes same load factor (so passengers also increase)
Operational leverage highest with load factor increase
Flybe UK costs per seat H1
Transactional
forex
EU261
Top-grading
Fixed cost
platform
Operating cost per seat exc.restructuring & surplus costs (£)
(56)
Extra
marketing
(55)
Staff
bonus
provision
(54)
(53)
(52.56)
(1.16)
(54.96)
Flight delay
provision
H1 2014/15
Operating cost
per seat
(1.12)
(1.19)
1.02
(52)
(51.53)
0.09
(0.61)
0.36
0.20
(51)
(50)
H1 2013/14
Operating cost
per seat
Foreign
exchange
H1 2013/14
Operating cost
per seat at
constant
currency
Fuel
Net airport, en
Aircraft
route charges ownership and
and ground
maintenance
operations
costs
Staff costs
Marketing and Other operating
distribution
expenses
costs
Efficiency opportunities excluding inflation
• We aim to:
– achieve a reduction in fuel costs as proportion of jets within the fleet
decreases (assumes price remains constant)
– deliver a reduction in aircraft ownership cost as part of our ambition to
increase aircraft ownership, as funds and market conditions allow
– contain fixed cost (including overhead, marketing)
• We aim to reduce cost per seat over time
Flybe UK impact of fuel and hedging positions
H1 2014/15
H1 2013/14
Change
Market rate
$959
$964
$(5)
Effective price
$959
$975
$(17)
Market rate
$1.62
$1.62
$0.00
Effective price
$1.59
$1.53
$0.06
604
638
(34)
Jet fuel, $ / metric tonne
Current hedge portfolio:
- H2 2014/15 – 90% hedged at $950 per tonne
- H1 2015/16 – 80% hedged at $937 per tonne
- H2 2015/16 – 73% hedged at $900 per tonne
GBP:USD rate
Current hedge portfolio:
- H2 2014/15 – 77% hedged at $1.64
- H1 2015/16 – 68% hedged at $1.66
- H2 2015/16 – 43% hedged at $1.60
Actual cost of fuel, £ / metric tonne
Note: Euro - small net exposure of <€20m, no formal hedging
Summary
• Enhance resilience:
– Strong balance sheet
– Expected further reduction in restricted cash
• Fleet and capacity are managed in a disciplined way, while we have future
opportunity to flex
• We apply cost discipline and aim to reduce cost per seat over time:
– Fixed cost base means operational leverage: incremental load factor assists margin development
– Savings programme on track
– We will aim to achieve further cost reductions, esp. fuel consumption and aircraft ownership cost
– We hedge to ensure cost certainty
Capital Markets Day – Revenue Generation – White Label
Jochen Schnadt
28 November 2014
What is White Label?
Definition:
“A White Label product by one company (the producer) that other companies (the marketers) rebrand
under their own brand or an alternative brand of choice so as to make it appear as their own product.”
The Flybe definition of White Label (‘XWL by Flybe’):
The provision of tailor-made and strategic capacity solutions for other airlines
•
Applying Flybe’s economies of scale, expertise
•
With optimised set-up for cost-efficient production on smaller-gauge aircraft
•
Maximising company synergies for the overall benefit of the Flybe Group
•
Effecting sustainable growth for the business at greatly reduced commercial and financial risk
Key ingredients for success in White Label
• Clear-cut contractual relationship
• Separation of powers
• Effective firewalling
• Optimised structure for capacity productions
• Bespoke proposition
Flybe’s compelling USP
Mix of pedigree, experience, structure and scale:
• XWL concept:
– Clear-cut and transparent contractual set-up including incentives to align both
parties’ interests
• Scale and experience:
– Flybe can offer clear economy-of-scale benefits
– Infrastructure in place enabling rapid growth
– Extensive experience with capacity production
• Independence:
– Independent ownership structure and not aligned with any major alliance
– Independence creates effective “firewalls”
Flybe’s White Label strategy
Generating traction with prospective customers:
Market
Intelligence:
• Network
understanding
Contextual
proposition
Research:
• Customer SWOT
• ‘Needs and
wants’
The White Label opportunity for Flybe
• General market observations and trends
•
Increasing convergence of business models creates opportunities with network and point-2point carriers
•
Network carriers under pressure by LCCs and strong non-EU carriers on long-haul
•
Timing is right for XWL
• The ‘Converted’ and the ‘Yet-to-convert’
+
+
+
Alternative capacity production models being widely considered
External partners as catalysts to achieve step-change in production costs
Increased focus on core business activities driving business simplification
However:
–
–
–
Ongoing reluctance or inability to look “outside” for appropriate solutions
Multitude of challenges dictate priorities - production optimisation may not be highest priority
External factors frequently constraining (eg local government intervention)
White Label is incremental, but magnitude yet to be established
The White Label opportunity for Flybe
A sizeable potential opportunity in Europe
White Label opportunity matrix
Resource intensity
Number of Aircraft
Discussion maturity
The White Label opportunity for Flybe
Solid business development pipeline
Contract
y
Preferred Bidder / LOI
y
Short-list
y
RFP
y
y
Evaluation
y
y
y
y
y
Introduction
y
y
y
y
y
Contact
y
y
y
y
y
y
y
y
y
EI
SK
EK
EY
FI
LH
LX
Customer
IB
Closed
Closed
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
y
OS
SN
TCX
y
UX
TP
y
y
y
y
y
y
y
y
OK
TUI
GIB
White Label outlook
• Early indications encouraging:
– Good initial responses well received, but long lead times
• Timing is critical:
– White Label increasingly relevant with most European airlines; first mover advantage
for Flybe
• Focused approach:
– Rigorous evaluation process and delivery
• Progress to date:
– First agreement with major carrier signed (SAS); ongoing discussions with several
other carriers
• Summary outlook
– White Label is incremental, but magnitude yet to be established
– External factors frequently constraining (eg local government intervention)
Capital Markets Day
Biographies
Biographies
Paul Simmons
Chief Commercial Officer
Paul joined Flybe in October 2013 having spent seven years at easyJet where he was
responsible for the commercial side of their UK business as Director, UK Market. During
his five year tenure in this specific role the UK region grew substantially and improved in
profitability (on a CPBH basis) from being the lowest region within the company to the
second highest. Prior to easyJet Paul held senior commercial roles with InterContinental
Hotels (Global VP, Intercontinental Brand) and Oberoi Hotels (EVP, Commercial). His
earlier career was in FMCG with companies including Procter & Gamble, Helene
Curtis/Unilever and Kelloggs.
Paris Anatolitis
Director of Route Performance
Paris joined Flybe in September 2014. He joined from Sportingbet, an online
gaming operator, where he was Country Manager – Greece.
Prior, he spent eight years with easyJet in different roles in UK, looking after
routes' performance, analysis and revenue forecasting.
Biographies
Ronnie Matheson
Director of Revenue Management
Ronnie joined Flybe in November 2013. He has more than 11 years of experience in
revenue management in the aviation and hospitality sectors, including the development of
bespoke processes and strategies. Ronnie worked for easyJet for seven years as part of
the yield management team, increasing revenue contribution per flight. He has also
worked for GB Airways and Whitbread/Premier Inn.
Ben Burge
Director of Network Planning
Ben has been the Director of network planning at Flybe since early 2014. Previously, Ben
held senior positions in network planning in bmi and British Airways for more than 10 years
as well as working in airport consultancy. With his experience of the UK and European
aviation marketplace, aircraft scheduling, route forecasting and airport-airline relationship
management, Ben will be driving forward the development of the network at Flybe.
Biographies
Jochen Schnadt
Director – White Label programme
A senior airline / aviation executive with over 20 years experience in commercial aviation.
Jochen has worked in commercial, strategic, planning and operational leadership roles in
the aviation industry, including Belfast City Airport and previously Monarch Airlines, Aer
Lingus, Qatar Airways, BA CityFlyer and SkyWest. He has been involved in or created
various leading-edge projects, developments and ventures within the industry during his
career, especially in the capacity solution space, leaving him well placed to lead the
development of the Flybe white label programme.
Capital Markets Day
Glossary
Glossary
ACMI
Air Passenger Duty (APD)
ATM
Available Seat Kilometres (ASK)
Block hours
Billing and Settlement Plan (BSP)
CAA
CASK
Codeshare
Contribution per Block Hour (CPBH)
Entry into Service (EIS)
Global Distribution System (GDS)
IATA season
LCC
Load factor (LF)
MRO
OAG (formerly Official Airline Guide)
OTA
Public Service Obligation (PSO)
Aircraft, Crew, Maintenance and Insurance
An excise duty which is charged on the carriage of passengers flying from a United
Kingdom or Isle of Man airport.
Air Traffic Movement
Seats flown multiplied by the number of kilometres flown.
Hours of service for aircraft, measured from the time that the aircraft leaves the terminal
at the departure airport to the time that it arrives at the terminal at the destination airport.
A system to facilitate and simplify the selling, reporting and remitting procedures of IATA
Accredited Passenger Sales Agents.
Civil Aviation Authority
Cost per available seat kilometre
An aviation business arrangement where two or more airlines share the same flight.
Expresses total contribution in terms of aircraft operating time, using the industry
standard metric, namely "block hour".
Point when aircraft passes test phase and joins the fleet.
A network enabling automated transactions between third parties and booking agents.
The scheduling calendar based on two seasons, Summer and Winter.
Low cost carrier
Number of passengers as a percentage of number of seats flown. The load factor is not
weighted for the effect of varying sector lengths.
Flybe’s Maintenance, Repair and Overhaul operation
United Kingdom-based business for aviation information and analytical services.
Online travel agents
Arrangement by which an authority offers an auction for subsidies on a route
Glossary
RASK
Route Assessment Model (RAM)
Route thickness
Revenue Passenger Kilometres (RPK)
Revenue per seat (RPS)
Sector block
Sector length
Service Level Agreement (SLA)
TMC
XWL
Revenue per available seat kilometre
The process used for assessing existing and potential routes
An indication of the passenger demand on a particular route.
Number of passengers multiplied by the number of kilometres those passengers were
flown.
Revenue divided by seats flown.
The scheduled length of a flight sector from when the aircraft starts moving on the
ground to when it stops on the stand
The length of the journey flown by the aircraft.
Part of a service contract where a service is formally defined.
Travel Management Company
Flybe's White Label business