Flybe recently collapsed for the second time in (just) under three years. As with its first collapse, the pandemic will be publicly blamed. Also as with its first collapse, this is very far from being the whole truth. Flybe’s second collapse happened for much the same reasons as its first collapse. Those reasons go way beyond the pandemic.
A brief history of low-cost carriers
Low-cost carriers (or budget airlines) have been around since 1949. During the early decades, however, LCCs were very much niche players. Furthermore, none of them operated in the UK. That all changed in 1995 with the launch of Easyjet and Ryanair.
They were followed by several other low-cost operations. Some of these were entirely new. Others were spin-offs or rebrands of existing operations. Flybe arrived in 2002. It was a rebrand of British European Airways.
Issues with low-cost carriers
Back in the mid-1990s, there was some level of scepticism about how the low-cost airline model was going to be able to work sustainably. Concerns were both environmental and financial. Both sets of concerns remain unresolved.
This means that there has to be real concern about the collapse of the low-cost carrier market. Even if it does not end completely, it is likely to be significantly weakened. As is always the case, the first casualties will be the airlines that were already weak. This looks likely to include Flybe. Here is a quick guide to its main problem areas.
Its flight destinations
Low-cost carriers depend on liberal markets. The European Union and the UK both have very liberal markets. This is why they are both such popular destinations with low-cost carriers.
Unfortunately for the airline industry in general and LCCs in particular travel to these destinations has plummeted. The pandemic certainly played a role in this. If, however, the pandemic was the only reason, then the airline industry should have recovered by now. It hasn’t because people’s travel habits have changed in some very important ways.
Firstly, business travel is being increasingly replaced by videocalling. Secondly, leisure travel is still largely on the back burner. The main factors behind this appear to be the cost-of-living crisis and ongoing fears of COVID19. Thirdly, there is a growing concern about the environmental sustainability of using air travel for short breaks.
All of these issues apply particularly to Flybe as it focuses on short-haul travel within the UK. It also has to contend with competition from other forms of transport (especially rail). As an LCC, Flybe offers a very basic flying experience. Rail companies, by contrast, can provide environments where travellers can be productive and/or rest in comfort.
Its difficulty managing its costs
The LCCs have to be hyper-focused on managing costs. What’s more, they have relatively little scope to do so. As with regular airlines, a significant percentage of their operating cost is spent on fuel. There is practically no room for negotiation with this, particularly not with smaller airlines.
Over recent years, Flybe has struggled to manage its costs. It has been hampered by a weak pound and extensive debt. This often left it charging above-average prices for below-average service (even by the standards of LCCs).
Its inability to leverage add-on charges
LCCs notoriously work on the razorblade business model. The core product is sold at a low price. The add-ons, however, can be very expensive. What’s more, the LCCs have become increasingly astute at selling add-ons.
Anyone familiar with the LCC industry knows that most LCCs make it practically impossible to buy a ticket at the headline (advertised) price. They also make it practically impossible to get through a journey without paying for some kind of add-on.
Unfortunately for Flybe, they have never been able to leverage upselling as effectively as many of their rivals. In fairness, this is partly because they operated very short-haul, domestic flights. This meant that passengers were often more able and willing to go without the profit-generating extras.
