LOGANAIR has warned it expects to make a loss in the current financial year as a result of Flybe launching competing routes into six Scottish airports.
The Glasgow Airport-based regional airline ended a franchise agreement with Flybe on August 31 2017 and began to fly under its own banner.
But before the agreement officially ended Flybe announced its intention to launch competing services in a new partnership with Eastern Airways. After launching these services on September 1, Flybe will cease flying from Sumburgh Airport on Shetland to three Scottish cities from next week.
“[The] competition has been very hurtful to our finances,” said chairman David Harrison. “We’ve got ourselves in a sustainable position in terms of the rest of the business, albeit we’re going to see profitability down again, potentially into loss for this year, but we have taken measures so that over time we will gradually see that rebuilt.”
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Mr Harrison was speaking as Loganair revealed that in the year to March 2017, revenue surged into nine figures for the first time, landing at £103m, up eight per cent on the previous year.
But the company’s pre-tax profit dipped 11 per cent to just more than £3m for the year as it invested in service improvements.
The airline has also suffered in the foreign exchange market, with one third of its purchases made in dollars.
Mr Harrison said the airline was surprised when Flybe opted to go into direct competition, particularly when the parties had been in talks over a codeshare operation, which would have allowed passengers to transfer between carriers with more ease.
“We had always said the volume of passengers was not big enough to support two airlines,” said Mr Harrison.
The additional seats offered, particularly into Shetland, has driven down prices, which Mr Harrison said had led to some extra growth, but the loss of “significant amounts of money” from flying on the routes.
Loganair subsequently restructured to ensure its viability while operating loss- making routes. This led to the loss of a “small number” of jobs at its Glasgow base, but the airline highlighted that more than 40 roles have been created elsewhere in the business.
The company is expecting to take a £3m charge in the current year relating to the costs of setting up to operate on its own. In addition it has renewed a £6m overdraft facility with Clydesdale Bank, and been advanced a £3m loan from major shareholder Stephen Bond.
Mr Harrison said the impact of the competition would also delay the replacement of its fleet, which is planned to begin over the next two years.
He said it was “hard to know” why Flybe set up competitive routes, given Loganair’s belief it was unsustainable to have two airlines operate the routes: “Our view would have been that it would never have worked”.
The impact of new routes linking Glasgow and Bergen, Norwich and Jersey, and Aberdeen and Durham Tees Valley, led passenger numbers to increase 8.6 per cent to 765,091 although load was down one percentage point to 62.8 per cent.
Mr Harrison said the charter side of the business had seen “useful growth” in the oil and gas sector. In its freight business, the year was marked with a new and enlarged five-year contract with Royal Mail, which Loganair the only aviation provider within the postal service’s intra-Scotland network.
Looking ahead, Mr Harrison – who has been with Loganair for 15 years – said the launch of Loganair as its own brand was a “huge achievement”.
“For many years we’ve been hidden, but now it’s Loganair, we’ve got a distinct identity and a real focus to provide the best service we can and be more responsive to the needs of the communities we serve in Scotland.”
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