East Midlands-based airport Flybmi collapsed earlier this week leaving hundreds of passengers stranded overseas. With the failure of the UK’s fifth biggest airline Monarch just last summer, and Flybe recently being sold for just £2.2m, it’s clear that the UK’s airlines continue to face turbulent times.
Flybmi enters administration
Nearly 400 employees at the regional airline Flybmi have lost their jobs following the carrier’s collapse last weekend. The loss-making airline, which operated routes to 25 European cities, was forced to cancel hundreds of flights after investors decided they were no longer willing to put more money into the ailing firm.
Just like Ryanair, Flybmi started out as a small, regional airline, but the business models of the two firms were at opposite ends of the spectrum. While Ryanair employs a ‘pile them high and sell them cheap’ strategy, Flybmi focused on charging premium fares for niche routes.
It flew from regional UK airports like Bristol, Aberdeen, East Midlands and Newcastle to European destinations such as Brussels, Dusseldorf, Frankfurt, Oslo and Munich. However, the average passenger load per flight was just 18, which meant even the small planes flown by BMI were only half full.
Why did Flybmi collapse?
Investors have pumped more than £40m into Flybmi, but that has not been enough to turn significant losses into profits. The airline cites uncertainty over the UK’s departure from the EU as a key factor in its failure.
A spokesperson for BMI said: “Current trading and future prospects have been seriously affected by the uncertainty created by the Brexit process. That has led to our inability to secure valuable flying contracts in Europe and a lack of confidence around Flybmi’s ability to continue flying between European destinations.”
The administrators have been called in
The restructuring firm BDO is acting as the administrator and has already taken control of the business. The airline has ceased trading and 376 employees have already been made redundant, while some will stay on to assist with the administration.
The priority for the administrators is to maximise recoveries for the company’s creditors and minimise distress for the staff, customers and suppliers who have been affected. They will now assess the firm’s assets to calculate how much can be returned to creditors.
As this point, it’s not thought there will be sufficient capital from the sale of the company’s assets to reimburse customers who have already bought tickets for the more than 600 cancelled flights. However, customers can find information on the Flybmi website about how to apply for a refund from their travel company or payment provider.
Flybe is up for sale
A similar name is not the only thing Exeter-based airline Flybe has with Flybmi. It has also been struggling to generate a profit in the current climate. Shareholders have agreed to sell the company to avoid going into administration after a profit warning was issued late last year. Despite having been a solidly performing carrier for more than 40 years, the firm was faced with heavy losses and was running out of cash fast, leaving it with little choice but to seek financial rescue.
The airline has been taken over by a consortium made up of Virgin Atlantic, Stobart Group (owners of an Irish-based airline) and the investment firm Cyrus for just £2.2 million. Although the shareholders will feel aggrieved at a deal that values their holding at just 1p a share, it was the only rescue plan on the table. The alternative would have been the collapse of the carrier, no shareholder return and the loss of hundreds of jobs. The sale is due to be completed by the end of this week.
UK airlines face strong headwinds
Clearly, UK airlines face significant economic headwinds at the moment, with Brexit uncertainty damaging consumer and business confidence and weakening the pound. These challenging conditions are not likely to change anytime soon. Let’s just hope no more UK airlines are permanently grounded before things improve.