London - Shares in Flybe Group slumped more than 20 percent on Monday after the British budget airline said it would break even before tax in its financial year ending in March 2015 after a fall in third-quarter passenger revenue.
The embattled carrier posted its first pretax profit in four years in the year ending March 2014, helped by brutal cost cuts that involved giving up airport slots, slashing jobs, exiting unprofitable flight routes and grounding surplus fleet.
But Flybe has since been on rocky ground, swinging back to a loss in the first half of its current fiscal year due to one-off costs and a charge related to its exit from its Finland joint venture.
The full-year forecast on Monday followed a 3.8 percent drop in passenger revenue in the final three months of 2014 to 126.8 million pounds on the back of competition on some new London City airport routes.
“We believe that this competitive pressure will extend the period of time that these routes take to reach maturity and deliver the full contribution we expect,” Flybe said.
The airline said excluding costs relating to grounded Embraer E195 aircrafts and the impact of some loan revaluations, it now expected to break even before tax this fiscal year.
Liberum analyst Gerald Khoo said this forecast implied a 9 million pound cut to profit estimates. He cut his target price on the stock to 140 pence from 180 pence, but kept his “buy” rating.
At 09h49 GMT, Flybe shares were down 22 percent at 70.2 pence after touching 67 pence, the lowest since November 8 2013.
Liberum's Khoo attributed Flybe's troubles to new routes from London City taking longer to mature, and adjustments relating to the company retaining nine surplus Embraer E-195 aircraft for longer than hoped.
While European routes have seen increased competition, forcing players to undercut each other on pricing, the fall in crude oil prices and thus lower fuel costs has come as some reprieve.
Regional airlines have stepped up hedging as they look to lock in huge savings, betting that a slide in crude oil to six-year lows may peter out near $40 a barrel.
Flybe said it would not see significant benefits from lower fuel prices until 2016/17, due to its hedging strategy.
Reuters