Why Shares In Flybe Group PLC Nose-Dived Today

But Flybe Group PLC (LON:FLYB) sees a significantly improved performance in its UK business.

Sam Robson

I've been a Fool for over a decade, and am proud to currently call myself the Editor in Chief of TMF UK. I follow Foolish investing principles, and buy shares in quality companies throughout both bull and bear markets!

Published 12 November, 2014 9:59 am GMT

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in Europe’s largest regional airline Flybe Group (LSE: FLYB) tanked by 20% in early trade this morning due to a £9.9m non-cash charge in its first-half results, which related to a full impairment of assets following the pending sale of its 60% share in loss-making Flybe Finland for just €1 to Finnair, its joint-venture partner. Across the group, Flybe saw revenue fall by 12.3% to £307.8m.

So what: This one-off charge more than offset improved results from its core UK business, where pre-tax profit lifted by £2m to £13.7m despite a £6m provision for flight delay compensation. Elsewhere, passenger revenue per seat increased 8.7% to £54.75, while chief executive officer Saad Hammad highlighted the strength of “the new Flybe”, going on to say:

“Our UK business performed well in the first half of the year… and importantly became cash generative.

“We are making significant progress in addressing the legacy issues within the business, which will ensure we operate with a simpler business model. We have taken decisive action in removing the overhang of the outstanding $750m order for 20 unwanted E175 aircraft, withdrawing from the Finland joint venture as well as providing for the potential costs for the arbitrary EU 261 regulation for flight delay claims in Flybe UK. We are working hard to resolve our surplus fleet issue.”

Now what: Flybe is set to launch new routes from London City Airport, alongside opening new bases in Aberdeen and Bournemouth. Elsewhere, it has entered into a codeshare agreement — where flights can be made with one ticket — with Aer Lingus to offer access to New York and several other US destinations, as well as Toronto — via a single stop in Dublin, causing passengers to enter the US or Canada as “domestic passengers”.

The airline continues to streamline its business model — Flybe’s UK operations are on track to save £24m for the full year, in line with previously announced plans — and some investors might see today’s plunge in the share price as a buying opportunity. But, as ever here at The Motley Fool, we stress the importance of using these company updates as a starting point for research, rather than a definitive source of information used to dive in or out of a company’s shares.