The Interview: Mike Rutter, Managing Director, Europe, Flybe

As previously reported on ABTN (€25m Flybe and Finnair deal to create Flybe Nordic) the joint venture between Flybe and Finnair draws ever closer, with Flybe fulfilling its promise of expansion in Europe, first through its codeshare with Air France, and now with a joint venture with Finnair to take over the FinnComm routes.

The routes have been announced (Inaugural Flybe Nordic routes announced) and the airline  reported strong demand with over 10,000 tickets having been sold over the first three weeks for its 25 routes across the Nordic and Baltic region. 

Flybe Nordic seems to be doing two different things. Firstly it is supplying feeder traffic to Finnair, and secondly it is point-to-point. Those are two completely different business models aren’t they?

Yes, the network is a combination of network and point-to-point. It helps from a product point of view that we have lab experience of doing what we do with Air France, so we know it genuinely works. They feed people into our planes through their business model and we feed into their traffic. But it’s true that in many cases you are serving different needs in cases like this. Our traffiuc is predominantly point to point while they are serving connecting traffic. So when it came to talking with Finnair, we knew we could make it work from a product point of view. The question was whether there was strategic alignment on goals, and that was tougher. At the press conference when we announced the deal I said “It’s obvious that arguing is national sport in Finland”. Now the plus part of that is there are no unanswered questions because we discussed everything in the negotiations. The Air France deal took four months to put together and this one took nine months, but the key thing as to why we think it will work is that Finnair recognises that this is something they could not do. When they do it, they export intercontinental costs into a regional business, and when you do that it doesn’t make sense. So Finnair has agreed with us where the business is going, but after that, we have been left to get on with it. And certainly for the first month that has been our experience.

And to be clear, Flybe Nordic is a separate airline from Flybe.

Yes. It’s Flybe brand and Flybe product. It will look and feel the same to the passenger, but yes, it’s a separate company. In the flights into Helsinki we expect around 30-35% to be feeder traffic onto Finnair. It will be the same service,  but you will have bought your ticket on Finnair so your terms and conditions will give the right to have your baggage put on free of charge, the same as we do with Air France. When you get onboard we will allocate a seat, but if you want something on board it’s the typical Flybe service and you pay for it. The vision was to have two separate airlines – firstly because it makes it clear to the passengers, and also from a labour point of view it is important that these airlines are seen as very separate.

Why can you run these routes at a profit when others couldn’t?

This is what we do. We know how to make money on short sectors. It’s not just about the cost base, that’s one part of it. But it’s finding ways of stimulating them. If you look at our business model in the UK and what distinguishes us from other regional airlines we have a brand, firstly. We also have worked hard on the 55 per cent of our passengers who aren’t business. If you go on a traditional regional airline, most of the people on that airline will be travelling on business so the markets you can serve are high prices and low numbers. In contrast we have a model where 50% is leisure or VFRVisiting Friends and Relatives without reducing the component that is business, and also it becomes a way of filling the filler flights in the middle of the day. Regional France was the UK place where we went to, but we will do something similar in Finland.  So it’s about the network structure, having a leisure and business and making sure each of the segments gets what it wants out of Flybe. They all come together on one tube, but the off-air services we provide them are completely different. If you are a business passenger you go to our lounges, most of our leisure passengers will never see those lounges. They sit next to one another on the flight, but it’s a short flight so they don’t need to be kept separate.

Will you be making money from the ancillary revenue?

Yes, we expect to introduce the full extent of our business model. There’s no history of charging for debit cards up here, so that’s out, but everything else we do appropriately for the marketplace will be done here. In the UK 18 per cent of our revenue comes from ancillary revenues and 82 per cent from ticket revenues. We would never go over 20% in ancillary because at that stage you’re not flying an airline you’re running an ancillary revenue business. In the UK the proportion of overall revenue from debit cards is two per cent.  

You’ve aligned the Flybe Nordic loyalty programme with the Finnair Plus loyalty programme, but if travellers are earning in the UK they’d be earning with Flybe (Rewards4all). That’s not ideal is it?

One of the issues we have with our programme we have a lot of people who earn points who aren’t actively that keen to redeem them on our network. Not because they have a problem of what we fly, but rather it’s to where we fly. If you’ve been flying Gatwick to Aberdeen, do you really want to go to Inverness or Belfast for time off? So one of the general tasks we have had as a business is to try and find ways of keeping the loyalty programme, but expanding it with partners who have more interesting places to redeem on, and similarly resolve their problems, since they might have people who are flying for business into Asian markets who want to have the chance to redeem them in the United Kingdom. So Finnair is the start of a process where we build relationships with other airlines who don’t compete, that will coalesce in an expanded programme. So generally the Flybe programme will evolve over the next few years. We are not flying between the UK and the Nordic and Baltic – because that’s a sector length which doesn’t suit our business, so those links aren’t immediate, but that will evolve and we will ultimately resolve that. If we roll out into Germany which we might then it’s something we would have to sort out straight away. Right now with the Air France codeshare, if you book on Flybe it’s points in Flybe that you earn, and if you book on Air France it’s points in their programme.