European regional airline Flybe took a beating recently over a revised revenue forecast worth 40 percent of the company’s value in trading on Wednesday. The airline expects a drop in revenues over the next six months due to falling consumer demand.
This worsens the airline’s expected losses for the year to over $25 million, which is after some cost-cutting measures the airline undertook earlier in the year when reduced capacity to focus solely on popular routes it knew it could fill. This ended up increasing passenger revenue per available seat mile (PRASM) by 6.8 percent and reduced capacity and, therefore, some costs by ten percent.
More than Just Falling Revenue
In addition to falling consumer demand across the European continent, the airline is faced with currency headwinds from the pound sterling’s depreciation and various other carbon emissions offset costs. All in all, this will cost the airline over $35 million annually in an already thin margin industry. This isn’t the first time the airline has faced financial woes. There have been several attempts to save the company with a massive restructuring done back in 2013.
Moving forward, Flybe chief executive Christine Ourmieres-Widener is looking to further reduce capacity and cut costs. While capacity reductions are at an airline’s control, things like currency headwinds and rising fuel costs are not.
Without a solid business plan to increase revenue to help offset rising costs, there will continue to trouble. Just recently, U.S. airlines released their financial earnings and airlines were able to shrug off some of the increased fuel costs due to increased ticket prices, the proper way to manage increased costs. Airlines should be able to pass off some of their increased costs to the consumer in order to preserve their margins as every other industry does it.
As of right now there is no solid plan for the airline to resolve their situation. The cards aren’t exactly stacked in its favor.
European Airline Failures
It’s also not exactly a great time for European airlines. Cobalt Air, the Cypriot low-cost carrier, recently ceased operations without much notice leaving passengers stranded. In the past few weeks, Primera Air declared bankruptcy and immediately ceased operations. European based low-cost carrier WOW air is also cutting capacity after its dart board expansion into the U.S. during its destination war with Icelandair.
It seems like rising fuel costs and overzealous capacity forecasts are finally catching up to low cost carriers which relied on low fuel costs and full planes to make money.
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