Why Does Virgin Atlantic Want To Buy Flybe?

Virgin Atlantic has confirmed it’s looking at a potential bid for Flybe.

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Flybe and Virgin Atlantic
Flybe and Virgin Atlantic

Following Sky News’ exclusive report on Thursday evening, Virgin Atlantic has confirmed it is in discussions about a possible bid to buy Flybe.

Flybe announced a little over a week ago that it had put itself up for sale and has appointed advisors to manage the process.

At the outset there are some caveats.

When a business announces it is up for sale, it is to be expected that many parties will come forward to have a good look at the books. Few will ultimately submit a bid.

Ordinarily, their identities are supposed to be confidential. When prospective purchasers are leaked to the media, it is usually deliberate and for a reason. More names may appear in the press this weekend.

Given Virgin’s existing codeshare relationship and the potential impact of a change in ownership it is to be expected that Virgin will take an active interest in the process.

With Virgin’s track record you could be forgiven this was simply a means of generating press coverage. When Lufthansa sold bmi seven years ago Virgin made a lot of noise about making a bid. It was not seen by Lufthansa as anywhere near as credible as the bid by International Airlines Group. So much so that the only alternative was liquidating the airline.

However, the fact that Virgin has appointed Rothschild to advise suggests it is serious in its intent.

Why would an exclusively long-haul airline want to buy a regional airline that barely touches the airports it serves?

Virgin Atlantic and Flybe

Virgin Atlantic does have an existing codeshare relationship with Flybe.

It relies on Flybe to provide short-haul feed, principally at Heathrow and Manchester. Flybe’s routes from Heathrow to Aberdeen and Edinburgh use remedy slots released by BA as a condition of its merger with bmi. Virgin tried unsuccessfully to use these slots itself, wet leasing aircraft from Aer Lingus under the brand “Little Red”. Should Flybe withdraw from Heathrow for any reason, these would revert back to BA.

There is another factor: Air France-KLM. It is due to take a stake in Virgin next year. Air France-KLM and Virgin will combine their respective transatlantic joint-ventures with Delta into one to compete more effectively with American Airlines and BA. Air France relies on Flybe to provide feed to Paris Charles de Gaulle from some UK regional airports. Flybe’s UK regional network could be optimised to feed all four airlines.

That said, there are a lot of things that don’t make sense.

Virgin is loss-making and has much else to do next year. Long-haul and short-haul regional operations are radically different. Flybe has substantial operations at airports of little strategic interest, Cardiff, Exeter, London City, Norwich, Southampton. A lot of politically unpopular decisions would have to be made. If Virgin wants to acquire more short-haul feed at Heathrow and Manchester – and this is the dilemma facing any potential purchaser – there are other ways to go about it than buying Flybe.

Expect this to run and run over the next few months.

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