(Updates with analyst comment in sixth paragraph.)
Jan. 23 (Bloomberg) -- Flybe Group Plc, Europe’s biggest regional airline, will eliminate about 300 jobs and reduce its divisions to two in an effort to produce savings of 35 million pounds ($56 million) in two years and restore profit.
The carrier plans to cut 20 percent of its management workforce and 10 percent of operational positions, partly through contracting out some work. There will be no significant changes in the U.K. route network, Exeter, England-based Flybe said today in a statement.
Flybe began examining its cost base last year in the face of higher oil prices and air passenger duties, and a “very tough macroeconomic backdrop,” Chief Financial Officer Andrew Knuckey said in a phone interview. The carrier is targeting a return to profit in fiscal year 2014 after analysts in a Bloomberg survey estimated a loss of 17 million pounds in the year ending March 31, 2013.
“It is very important for the future of the business that we return it to profitability immediately in 2013-2014 and that’s what this action will achieve,” Knuckey said. “The vast majority of the cost savings and efficiencies” will be in the U.K., the executive said.
Flybe shares dropped as much 7.1 percent and traded down 5 percent at 47 pence at 10:19 a.m. in London. The stock has retreated 22 percent in the past 12 months, valuing the company at 35.3 million pounds.
“Persistent losses were unsustainable and needed tackling,” Edward Stanford, an analyst at Oriel Securities, said in a note to investors today. “Much will depend on the delivery of these targets and it is obviously still early days.”
Flybe will spend 10 million pounds to 12 million pounds on the reorganization, most of which will be booked in the current fiscal year, it said. The number of divisions will be reduced to Flybe UK, focused on scheduled commercial services, and Flybe Outsourcing Solutions targeting contract flying, training, maintenance, repair and operations work.
Flybe UK, which controls more than one-quarter of the U.K. domestic market, intends to break even on profit per seat in the next fiscal year and targets profit of three pounds a seat within five years. The carrier’s costs per operated seat, excluding fuel, rose by 0.8 percent in the fiscal third quarter compared with a year earlier. The outcome of a route network and base review will be announced in June when the company releases full-year results.
Established as Britain’s biggest domestic carrier and the No. 1 in Europe on so-called regional routes after the 521 million-pound purchase of a British Airways unit in 2006, Flybe had been seeking fresh takeovers to expand beyond its home market, adding Finnish Commuter Airlines Oy in 2011.
Knuckey declined to comment on whether Flybe would consider taking over some of Aer Lingus Group Plc’s short-haul routes if the Irish airline is purchased by Ryanair Holdings Plc.
Ryanair is petitioning European Union authorities to approve its offer for Aer Lingus. Its latest concessions include surrendering half of Aer Lingus’s short-haul business, and were sent to competitors and customers for comments two days ago, according to two people familiar with the negotiations.
In its contract flying business, Flybe provides planes, flight crew and engineering support to European carriers including Brussels Airlines, Olympic Air and Finnair. The company said today that it is targeting a profit per contracted aircraft of 400,000 euros within five years.
--Editors: David Risser, Robert Valpuesta