Photography by Julian Dodd

Flybe's bumpy ride

With out-of-control costs, big losses and the wrong planes, the regional airline has had a turbulent history. Can its CEO Saad Hammad turn things around?

by Matthew Gwyther
Last Updated: 26 Feb 2016

Travel to South West England is not easy without enduring pain. The M4/M5 route if taken at any point from 7am to 10pm is like Death Race 2000 and, during summer months, has added jack-knifing caravans to increase the jeopardy.

The A303 is a joke often involving unscheduled drive-by sightseeing of Stonehenge from five-mile long traffic jams. The trains are slow, expensive and use 19th-century track without overhead electrical power lines. The rolling stock out of Paddington is ancient, dilapidated and over-crowded. South West Trains' Waterloo-Exeter service goes at a comic Thomas the Tank Engine pace on a single track once past Salisbury.

So, the best way for MT to visit Saad Hammad, the CEO of Flybe at his Exeter Airport HQ, is to take one of his Dash 8s from London City Airport. (Round trips can be had for as little as £80.) You can't miss Flybe's aircraft - long, purple, propeller-driven cigars with 'Faster than road or rail' emblazoned on the engine cowling. It's pretty clear who Hammad regards as the oppo. Never mind BA and Ryanair, he wants us all off the tarmac and iron horses and into the sky.

Flybe CEO Saad Hammad comes to the rescue. Photography by Julian Dodd

It's not bad at all. On the way down, MT was slightly delayed by February freezing fog. On the way back, however, we did wheels up from Devon and back to my front door in London SW8 in an hour and 35 minutes, which was pretty impressive.

So ardent is he in his mission to revive his previously ailing airline, Hammad tells everyone that if Flybe didn't exist, like god, you'd have to invent it. In 2013, however, it came within a whisker of not existing at all because, in another parallel with god, it had been moving in mysterious and arbitrary ways. When he got to the CEO's seat in August of that year there were six days' free cash left and he wondered if he was going to make payroll. That figure later went down to three days. He began his 'Armageddon plan'.

Flybe has a long and turbulent history. In the precarious world of airlines this is not uncommon. (Describing airlines as 'a death trap' for investors, Warren Buffet once remarked, 'If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright.') Flybe took to the skies as Jersey European Airways back in 1979 before being sold to the Blackburn steel magnate Jack Walker in 1983. (Why not own an airline? Sexier than girders.) It became British European in 2000, then Flybe in 2002. It bought BA's failed Connect UK regional business in 2006 when the former couldn't make it pay.

On a wave of largely irrational exuberance it floated on the London Stock Exchange back in late 2010 with Merrill Lynch leading the charge. Five profit warnings later it was dubbed 'Ocado with wings' as its share price crashed from a flotation price of 295p down to 40p just before Hammad took over. By 2013, 61 of its 158 routes were not covering their fixed costs and Flybe had announced an annual loss of £40.7m and debts of £66.3m.

Its previous boss Jim French somehow managed to pay himself £715,000 in 2009 when the CEO of the immensely larger British Airways Willie Walsh only took home £674,000. 'The smell of kerosine does funny things to otherwise rational people,' says Hammad. 'I really felt for Jim who had built so much, but it was a life-stage thing and required a different capability.'

Schooled in the no-nonsense world of private equity, Hammad is nothing if not ruthlessly analytical. 'Flybe desperately needed more rigour. More process. You cannot run an airline of that size by the seat of your pants. It was never adequately capitalised and costs were totally out of whack.'

Hammad set to work with the knife. He had to lose one-third of the 2,600 workforce and he closed six of the airline's 13 bases. He started going round the country to talk to people and give them the bad news. 'I looked them in the eyes,' he recalls. 'I told them it wasn't their fault. But it was one of the most harrowing things I've ever done. These were decent, hard-working people doing something they loved in an area where often they were the only employer. Grown men broke down in tears.'

Then he had to look at his tools. 'We had the wrong kit - expensive Brazilian Embraer jets which were too costly to own and operate. I grounded 14 of them immediately because it was easier to have them on the ground doing nothing than costing more money in the air. As if that wasn't enough there were another $900m worth on order. I had to act fast.'

Purple prose in Exeter: you can't miss the airline's noisy slogan ‘Faster than road or rail’ on its planes

He embarked on one of the longest and trickiest extended negotiations of his life. 'I told Embraer we couldn't afford and didn't want their jets. They replied "this is a legally binding obligation". There followed a lot of brinksmanship.'

Then he lucked out when he met the boss of the US airline Republic who was sniffing around the UK and had heard Flybe was about to go bust. 'I called him and we managed to negotiate a tripartite deal between us, him and the manufacturer to take the order off our hands. And he had smaller turbo props, which we could take. In this way, I managed to offload a £500m liability.'

He has done a deal with Peter Rigby, who owns IT businesses as well as Exeter and Norwich Airports plus a hotel chain, to make better use of the remaining jets he cannot offload. Flybe uses its engineers to service the planes of other airlines, rents its flight simulators out to pilots from other businesses and even now teaches management skills to staff at First Great Western, the rail company. Everything is being sweated harder.

Hammad has made savings of £74m and relaunched the brand with a new look and a 'purple philosophy'. They accept they are a niche business in thin routes but if they keep costs down they should be able to make profits on routes with as few as 40,000 passengers a year. Finally, he needed to recapitalise. In 2014, he got the Jack Walker trust out and managed to bring in institutional shareholders via big funds to raise £150m and strengthen his weak balance sheet. (This was almost double its market capitalisation at the time.)

A big, restless package of tennis-playing energy, Hammad is a zealot. His wife calls him a sucker for punishment. What he runs now is Europe's largest regional airline operating from 37 UK airports, which gives it the largest British domestic coverage of any carrier. Flybe accounts for 53% of all internal flights in mainland Britain and on 80% of its routes has no airborne opposition. The problem is trying to make it properly profitable.

There are so many easier ways to make a living than running an airline. But people fall for them. They think it's still like Imperial Airways flying boats down to Cape Town - a fuselage of romance. 'The best piece of advice I had when I joined easyJet in 2005 was a warning not to fall in love with this industry,' he says. Ryanair's Michael O'Leary has noted that if you just regard them as buses with wings everyone would remain more sensible and grounded.

There are just too many variables that upset the best-laid plans: fuel prices (currently benign), stroppy pilots or French air traffic control unions, weather, terrorism, jealous governments, even Icelandic volcanoes which ground all flights in Europe for days and days.

Flybe's busy operations room at Exeter Airport: it is the largest regional airline in Europe

At least Hammad now feels he has put out the fires and can look to plan and build for the future. 'We're far more resilient now and we never want to face that abyss again. You must always watch demand and cost constantly. We must never suffer boiled frog syndrome again.'

Hammad has negotiated a pretty sweet deal for himself if things go very well. Although his salary is £425,000, he has a three-year open-ended incentive package which would give him the equivalent of between 3 and 4% of any increase in Flybe's market capitalisation. At the moment that won't amount to much because the share price currently languishes around the 70p mark. But in the unlikely event that he got to easyJet's market worth, he'd make £180m.

Hammad has an interesting CV. He's Lebanese by birth but left when things took a turn for the worse in his homeland. He attended boarding school in Sussex, followed by PPE at Oxford and then business school at INSEAD. His is a classic diaspora family with two sisters, one in Beirut, one in Connecticut, and another brother in the UK.

If you ask him, he says he feels more British than anything else. He cut his teeth at P&G where at the age of 22 he found himself in charge of marketing women's sanitary products (nowadays known as Fempro) in the Middle East. 'They trained me well,' he laughs. 'You get huge responsibility very early - I'll never forget arguing at length with a man from the ministry in Bahrain about our Always sanitary pad ads, which he said were too explicit. Too many arrows.'

From there he went to consultants BCG and then into private equity which shaped him - 'I loved its clarity.' He did strategic development at Thorn EMI, ran Vision Express, invented an online business to help Avis offload used hire cars, did some crunchy stuff in logistics.

Then in 2005 he wound up as chief commercial officer at easyJet, which had just suffered two profit warnings. A classic turnaround job.

'When I came here the similarities with easyJet amazed me. I had flashbacks. I went to board meetings where members turned their chairs away from others so they wouldn't have to talk to each other. Individuals weren't on speaking terms. There was internal warfare, a lack of rigour, a loss of direction. They were all over the place. But at least at easyJet we had a billion pounds. Here it was hand to mouth. We had a balance sheet problem and a P&L problem.'

Stelios? 'An interesting chap: not a big cuddly guy. Often his own worst enemy but he deserves huge credit for that business.' Hammad couldn't see himself ever getting the top job at easyJet but leaving was a wrench.

He's a restless rolling stone who has never lasted more than five years at anything he's run but says, 'I'd like this to be my last job.' He and his wife live in a converted old folks' home on the Somerset/Dorset border. Although he's clearly surrounded by capable and committed people, one feels an awful lot is riding on him personally. On his force of personality.

He's a natural optimist and appears genuinely enthused by what he does. 'We add so much value both socially and economically.' He tells the tale of an Aberdeen oil industry worker living in Devon whom he sat next to on the man's 1,000th Flybe flight. 'He couldn't do his job without us.'

Hammad can now think about the future. 'Our ambition is now to connect Europe and one-third of our capacity is already between the UK and Europe. The big legacy carriers such as Air France and Alitalia are in bad trouble and retrenching. They are being clobbered by the likes of Emirates and Etihad. But the low-cost airlines like easyJet and Ryanair will move away from thinner routes because they are unappealing.

'At the same time governments all over Europe are budget-strapped. There is no more money for roads or railways. What makes me mad is that our government will not think holistically about transport. Eighty per cent of the UK's GDP is made outside the M25!' (He acknowledges HS2 is an exception but condemns it as 'nuts! Eighty billion of taxpayers' money to take 20 minutes off a train journey.')

Inside Flybe's Exeter Airport HQ: the airline has 75 planes and accounts for 53% of UK inland flights

There are exceptions. The government pays Hammad a subsidy under the public service obligation to fly between Gatwick and Newquay in the economically benighted South West. Plymouth Airport closed in 2011 and the collapse of the sea wall and washing away of the track at Dawlish was the final straw for many.

Hammad appears to have cordial relations with the Scottish government. He has a sizeable and vital operation north of the border with three bases. Flybe via Loganair, its franchise partner, performs the vital role of connecting many of the islands to the mainland. He is eagerly awaiting the SNP's promise to reduce Air Passenger Duty to zero. 'It's an unfair, dysfunctional tax with many unintended negative consequences. Every government which removes it sees the benefits.' Sadly, APD brings George Osborne £3bn annually.

He also rages about airline passenger compensation rules imposed by Brussels, the legendary EU 261. 'Insane! Nonsense! Three times the average fare. Trains don't have to pay this.' And he's put in his two pennies' worth on the future of London's runways with an ingenious and intriguing plan to open up the RAF base at Northolt to commercial operators other than the super rich in their Gulfstreams and then to link it to Heathrow by express bus. 'We've got to do something about London runways now because it could be 15-20 years before we actually get another new runway finished.'

Let's hope Flybe can endure. Its now 2,000 employees and eight million customers have their best chance under Hammad. And it's an important reminder that London for its unwieldy dominance isn't everything, not least for those on the long Devon to Aberdeen commute.


1979: Launches as Jersey European Airways.

1983: Sold to Jack Walker Steel Corporation.

2000: Renamed British European.

2010: Places order for 35 Embraer E175 aircraft worth $1.3bn and options for 65 more.Floats on London Stock Exchange at 295p per share.

2013: Saad Hammad becomes CEO in August. Flybe has six days' free cash left. Sells its Gatwick slots to easyJet for £20m.

2014: Loses one-third of its workforce and attempts to offload jets. Sells its Finnish business for €1.In February, it raises £150m to strengthen its balance sheet.

2015: Bookings dented by Paris terrorist attacks.

2016: February - largest regional airline in Europe with 75 aircraft, 72 departure points. Operates from 37 UK airports; accounts for 53% of UK inland flights. Share price 71p.

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