What Would Happen To Flybe If Acquired By Virgin Atlantic?

The British domestic airline Flybe has been in some financial difficulty, they have not managed to make a profit for some time and are desperate to find a new owner.

Out of the possible new buyers, Virgin Atlantic looks to be the most likely to snatch up the airline for only $25 million.

But is it a good buy? And what will Virgin Atlantic have to do to make the airline profitable?

Why does Virgin Atlantic want Flybe?

Remember, Flybe is not profitable, so Virgin Atlantic is not buying the airline to add a new business to their aviation portfolio. In fact, the Flybe is on track to make $22 million in losses this year, after they struggle to overcome costs incurred to stay modern.

Additionally, Virgin Atlantic does not have a domestic airline anymore (They did make one attempt in the past, Virgin Atlantic Little Red) and thus they are not buying the airline to remove competition.

They want the airline for their Heathrow slots (Which can be sold for millions of dollars) and their fleet of 78 narrow body aircraft.

“Flybe has a fine suite of slots across the UK, particularly at Heathrow. Any bid by Virgin would be a back-door way to get access to them and is probably cheaper than to wait to buy similar landing slots outright.”

Plus the fleet of turboprops and small jets are far more fuel efficient than Boeing 737’s and Airbus A320s that their competitors use. As they are smaller, they are also easier to fill up with passengers.

How will Virgin Atlantic change Flybe?

So, if we can accept that Virgin Atlantic will have to completely overhaul Flybe, what will change and how will they do it?

Part of the problem with Flybe is that they are competing, not only with other domestic services in the UK, but low-cost carriers EasyJet and Ryanair. Virgin Atlantic will need to find a way to make their new Flybe routes profitable against these carriers and be a more compelling product. Unfortunately its very likely that passengers for these short-haul routes will not be interested in comfort or entertainment, but rather buy the cheapest possible ticket.

Additionally, those sought-after Heathrow slots may only be used for domestic trave and the airport recently slashed the landing cost of domestic planes. Another factor that makes Flybe more attractive is Brexit, it’s very likely that Ryanair and EasyJet might find it harder to operate domestically in the UK, but Flybe will have no such barriers.

Thus, we can assume that Virgin will cut a slew of unpopular routes and turn the airline into a hub and spoke model, feeding domestic passengers to their Virgin hubs of Manchester and London. Some of these routes might operate on a loss, but as they are simply transferring passengers onwards internationally.

The three most popular routes that they will focus on will be:

  • London to Manchester
  • London to Edinburgh
  • London to Aberdeen

This is based off their previous track record when they ran little red.

But its possible Virgin might use the aircraft to relaunch a new low-cost carrier, as they came so close back in the early 80s.

Analysts said some of its slots at Heathrow could also be turned into any short-haul European services Virgin might wish to develop, although some – such as the Newquay route announced on Thursday by the government – have a public service obligation.

The Virgin Atlantic Low Cost Carrier Shuttle

It is also important to note that Virgin has no experience running narrow body aircraft and will have to fully integrate the pilots, operations and more into their full body carrier. A process that could take months and be difficult.

What do you think? Will Virgin be able to make this route profitable?

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