Flybe fails to cash in on falling oil prices, shares nosedive

26th Jan 2015 11:03

Flybe shares were hit hard as the company admitted that the oil price slump would do little to ease costs because the budget carrier is locked into a contract for the remainder of 2015. While rival airlines benefit from cheaper jet fuel prices, Flybe will pay considerably over the odds. The firm is locked at $129 a barrel for 97% of its fuel intake until March, when its current fiscal year ends, whereas at present a barrel of Brent crude costs just $48.The firm also hedged 71% of its exposure for the first half of its next financial year at $128 a barrel and 66% for the second half of that year.Shares plummeted over 20% to 69.93p in early trading following Monday's trading update, as Flybe announced its expectations to "achieve around break-even" at a pre-tax level for the year to March 2015."The benefit of lower fuel prices, given our hedging strategy, will not flow in significant amounts until 2016/17, though we will be covered in case fuel price increases next year," said Flybe's chief executive Saad Hammad.The company also unveiled a 3.8% drop in revenues year-on-year to £127m between 1 October and 31 December. This included a 6.1% reduction in the number of seats flown, which the company claims to be in-line with its strategy to restructure and re-size.Hammand insisted that selling off peripheral assets and reworking routes will pave the way for strong improvement. He said: "Only a year into our three-year transformation we now have a platform which enables us to compete in a tough environment where the consumer demands value. We have responded to that by keeping our fares low and launching new routes.""Having removed nearly a $1bn of future liabilities over the course of this year in relation to the firm legacy order for additional Embraer E175 aircraft and ongoing losses of Flybe Finland, we are making solid progress towards finding a solution to our remaining legacy issue, Project Blackbird."Michal Campbell, analysts at Northland CP warned that "the exit timing of Project Blackbird E195's, which is costing the business roughly £26m a year could be a drag on the share price over the near term."