Flybe sacrifices yields as UK market drags revenues down

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UK regional carrier Flybe is not expecting to recover a shortfall in third-quarter revenue by the end of its 2011-12 financial year, owing to the tough domestic market.

Domestic conditions have "continued to deteriorate", the carrier said in a trading update, the underlying decline reaching 8% in the third quarter, from a level of 6% at the half-year point. Sales in December were "particularly disappointing", it added.

Flybe's overall revenues for the quarter increased by 20%, as a result of the carrier's new Nordic joint venture - an expansion designed to ease the airline's dependence on the UK market. The venture is "performing in line with expectations", it said.

The carrier has sacrificed planned increases in yield - maintaining them at the previous year's levels - in order to retain volume and increase market share. Its share of the UK domestic market has risen two percentage points.

Flybe said UK passenger numbers and revenues for the third quarter were "broadly in line" with those of the same quarter in 2010-11, but this equated to a "significant shortfall" against revenue expectations. It added that it did not expect this shortfall would be recovered during the remainder of the financial year, which ends on 31 March.

Chief executive Jim French said: "I believe that maintaining volumes and growing market share at the expense of planned yield increases was the correct decision to protect the long term potential of Flybe.

"We have disposed of surplus aircraft this year and reduced our winter capacity in line with the market, and we continue to aggressively manage capacity and costs."

Flybe also believes that market conditions will "force further rationalisation" in the European short-haul airline market, and that the UK carrier stands to benefit.