Borrowing from a famous line coined by French philosopher and wit Voltaire, Saad Hammad says that if Flybe didn't exist it would be necessary to invent it.
It might equally be true to say that the UK regional carrier wouldn't exist today if it hadn't been reinvented.
Hammad says there was a real danger of Flybe collapsing before he took over as chief executive in August 2013, when there was only three days of free cash left in the bank.
"It was a business in deep crisis, facing mortal danger, facing the abyss," he tells Airline Business, adding that Flybe was "running out of cash very quickly and needed immediate actions to sort it".
Hammad describes a company that was not just loss-making but had lost its sense of direction, with "siloed" thinking and a "fractiousness" in its management that went all the way up to board level.
Pre-tax losses reached £40.7 million ($62.9 million) for the year ended March 2013, with the Exeter-based carrier weighed down by the impairment it was incurring from its joint venture with Finnair in Finland and unprofitable routes and bases across the UK.
"I had to move quickly," he says. "I had done my due diligence before but I didn't really appreciate some of the challenges I would face when I got there. We needed oxygen. We needed to get this business moving in the right way and gain the opportunity to turn it around."
Hammad's first priority was to stabilise the company, and he initiated an action plan designed to reduce costs, remove legacy issues and improve commercialisation.
An order for 22 Embraer 175 jets, representing an $892 million obligation, was successfully "negotiated away". Surplus aircraft were grounded "pretty quickly, because we weren't even recovering the variable costs on a lot of the flying", he says.
Hammad then determined an existing cost-cutting programme "certainly wasn't sufficient" and doubled its targets.
Internal structures were streamlined, six bases were closed and 40% of routes – 55 in total – were restructured. A decision was taken to find new uses for the carrier's leased E195s, with the ultimate goal of becoming an all-Bombardier Q400 fleet operator.
This project was completed in 2015 with five E195s returned to their lessors and the remainder redeployed on publicly-subsidised or airport-funded routes, reducing the carrier's liabilities for the jets from £120 million to £80 million, and finally £40 million.
Cost reductions included 1,000 job cuts, representing a third of the total workforce. It was a "huge" move for the carrier, Hammad says, and "quite traumatic" but, he says, unavoidable: "It's like cutting off an arm to save a body. It's necessary."
Prior to joining Flybe, Hammad was commercial chief of EasyJet from 2005 to 2009. He used that experience to bring what he calls "commercial muscle and analytics" to Flybe's internal processes.
"Not unlike many entrepreneurial businesses, you can run them by the seat of the pants for so long – and then they get to a level of scale and complexity when you need proper analytics, proper process, proper rigour," he says.
"So I brought in some of the guys who helped me build that at EasyJet, to build these disciplines at Flybe. This included mechanisms to select routes and assess properly the performance."
The fruit of the team's labours was seen in November 2015, when the airline posted a pre-tax profit of £22.9 million for the six months to 30 September.
HEARTS AND MINDS
Hammad says that the biggest challenge of the restructure was not reforming the business, which involved logical steps, but encouraging the staff to believe the carrier had a viable future.
He describes the prevailing atmosphere when he arrived of "almost a passivity – a victimhood that gets built in when things go wrong". He says this was allied to a "very patriarchal culture, a very traditional concept in terms of the way the business was run – people didn't take full ownership and accountability for their areas of responsibility".
A new ethos was introduced, "the purple way", encouraging staff to work in a more proactive and inclusive manner.
At the same time, a new management team was formed to give fresh vigour to the company. Ex-Jetstar executive Vincent Hodder was brought in as revenue chief. Philip de Klerk arrived from Unilever as finance chief; Hammad describes him as a "really seasoned finance individual". Ex-Wizz Air operations chief operations Luke Farajallah joined in 2015, while London Heathrow's Kate Ledger was recruited as general counsel.
Hammad says "hard graft" was necessary to regain the confidence of Flybe's stakeholders – its employees, investors, the regulators, banks and lessors – but the work paved the way for Flybe to raise £150 million in new capital in March 2014.
Despite his background, Hammad says he did not want to "EasyJet-ify" Flybe, but rather wanted to build on the regional carrier's already strong position as a connector for UK communities – a "great concept", he says, but one that had been "badly executed" in the past.
"We link more communities than any airline – we connect Britain. One out of every two domestic customer travelling regional in the UK is a Flybe customer and 53% of domestic flights in the UK is a Flybe flight," he says.
In Hammad's view, large swathes of the UK's communities are under-served by all forms of transport, but particularly by air. By connecting them Flybe not only carries out a social obligation, he says, but serves a market the low-cost carriers and network carriers often overlook.
Hammad says 80% of Flybe’s routes are uncontested. It has competition from EasyJet, for example, on just 10 of its 190 routes. Most of Flybe's competition comes not from the air but from road and rail.
Rather than competing on thicker routes where the low-cost carriers can leverage lower unit costs, Flybe seeks to ply short sector lengths with higher frequencies than its competitors can achieve with larger aircraft.
"We can really stand up to the big boys, but you have to stay true to your sector length, you have to stay true to your concept of low-volume short-hop routes. The economics are very different on the thicker routes, where they can offer more frequencies and then their unit-cost advantage can really hurt you.
He adds: "We don't want to stray. We want to stay true to our model of connecting regions on low, short-hop routes which mainstream airlines find difficult to operate." On routes where Flybe does compete with other carriers, it offers higher frequencies of service, attractive to the business passenger.
As part of its drive to connect communities with a "one stop to the world" concept and – of course – boost revenues, Flybe has entered into nine codeshare agreements, including with Cathay Pacific, Emirates, Aer Lingus and, most recently, Virgin Atlantic, and 17 interline agreements.
Today, the carrier operates a fleet of 72 aircraft including 49 Q400s, along with several ATRs, E175s and E195s. It operates 194 routes with 10 bases. Having sold its slots at Gatwick in 2014, the UK carrier routes its London traffic through London City airport.
But Flybe has not had it all its own way. Although new routes have been created, others have been axed where they have underperformed, and bases such as Bournemouth have been closed.
CONTINENTAL EXPANSION
Hammad's next target is to expand Flybe's presence in continental Europe, in both in terms of UK-to-Europe routes and continental flights, where he sees a need for more regional connectivity mirroring that in the UK.
"The exciting thing is that the issues that affect regional communities in the UK also affect regional communities in mainland Europe," he says, pointing to "unmet demand" from 39 million potential customers on "thin routes" across the continent.
Flybe will start flights from Hanover to Milan and Lyon later this summer, as a precursor to opening an as-yet-undisclosed European base. Meanwhile, Hammad is targeting an increase in Flybe's total routes operating from the UK to Europe, from 30% today to more than 40% by the end of the 2016 financial year.
He also signals the possibility that the UK carrier could would be "receptive" to acquisitions to grow its footprint. Noting that the regional European market is very "fragmented", he says he "suspects" mainstream carriers that are struggling in the short-haul market might look to sell off their European regional subsidiaries.
If that was to happen Flybe "would definitely be a receptive audience to listen to what people have to say", he says.
But could the UK's June referendum on EU membership scupper Flybe's continental expansion plans? Hammad does not think so.
"I think people confuse Europe with the European Union. Whether we stay in the European Union, we are still going be part of Europe and we are still going to be hugely dependent on Europe, so Flybe is a regional airline that will serve the continent almost independent of what the union arrangements are."
In 2011, under previous chief executive Jim French, Flybe established a new airline in Finland – Flybe Nordic – through a joint venture with national carrier Finnair.
Flybe Nordic, initially 60% owned by Flybe and 40% by Finnair, was the parent company of Flybe Finland, which operated both scheduled and white-label flights within the Finnish market on behalf of Finnair, using Flybe metal.
Hammad says the white-label portion of the joint venture was profitable but the scheduled business was haemorrhaging an estimated €1 million a month by the time he took over, and he sought a quick exit. That opportunity came in 2014, when Flybe sold its 60% stake in the business to Finnair for €1.
Flybe Nordic/Finland was, Hammad believes, doomed from day one because the wording of the contract underpinning it was, in his words, "madness" and "nonsensical".
He adds: "People didn't understand what the model was. It had a white-label bit, which worked and was profitable, but then we were obligated under that agreement to operate our own brand name – Flybe – and risk flying in the northern hamlets of Finland. I mean, who has heard of Flybe in Finland?"
Hammad says the fact that Flybe Finland was averaging 40% load factors and operated on Finland's eight thinnest routes meant it was "never going to make money".
But the failure of Flybe Nordic did not put an end to the UK carrier's interest in white-label operations or the Scandinavian market.
Flybe continues to operate flights on behalf of clients such as Brussels Airlines, and signed a white-label agreement to provide capacity for Helvetic in 2014. Later that year, the carrier also agreed a contract with SAS, under which it would wet-lease four ATR 72-600s on regional routes Finnish and Swedish routes from winter 2015.
Unfortunately for Flybe, the joint venture with SAS has not been without its challenges. In February, just months after starting, the operation was disrupted by industrial action by staff over pay and conditions. Flights only returned to normal after SAS agreed a new labour deal with cabin crew.
Hammad says Flybe was "very involved" in the resolution of the dispute, but he does not confirm what the material cost of the industrial action was, or what the new labour deal will be for Flybe. However, he does say: "You always want to find the most economical way of doing things, and sometimes you have to give and take, so in the final analysis you will ultimately do what you need to do to get the right result. And if it costs you more, then you find ways to make sure that you are efficient and effective so that it delivers as per your original expectation."
By Hammad’s own admission, though, Flybe's initial enthusiasm for white-label operations has cooled, and he said last year that Flybe would be focusing increasingly on its core "branded activity” rather than contract flying.
But he points out that while outsourcing regional flying is now the norm in markets such as the USA – where regional carriers perform what he estimates to be 80-90% of such flights – in Europe the figure is much lower, around 10-20%.
He believes legacy carriers, and especially state-owned carriers, will come to see the benefits of outsourcing over time. As he says: "The trend is our friend."
In June, Flybe will release full-year figures that will give an indication as to whether Hammad has managed to maintain the positive performance he has achieved in the past six months. But there is no doubt that Hammad is happy with the progress that has been made so far.
"We are on our way. It's an exciting time, it's a difficult time, it's a difficult revenue environment," he says. "We enter this new financial year with confidence and momentum, despite the challenges that we are looking at."
Source: Cirium Dashboard
