Is Virgin Atlantic about to buy up Flybe?

Flybe put itself up for sale just a couple of weeks ago and is already being couretd by a number of potential investors.

One of the most likely is, according to the rumour mill, Virgin Atlantic. You might wonder why this long-haul only boutique airline would be interested and the tale goes back a few years.

Remember British Midland? Bought up by BA a few years ago in 2012, it was Virgin Atlantic’s feeder airline, delivering, in their assessment, 35% of its passengers to Heathrow.

On that basis, with BA getting the vast majority of its slots, the CAA mandated that a number of slots, while controlled by BA, were for the exclusive operation of UK domestic operations and should be handed over to anyone willing to operate those services.

And so Virgin Atlantic Little Red was born in 2013, with four A320’s leased from Aer Lingus.

It was a superb idea, poorly executed. The product was very on-brand and had its fans (including me). However it was a chronic loss maker from day one, with wet leased aircraft and fares as low as £10 return to Edinburgh pumped up by £94 in airport departure fees and taxes.

On top of that the Manchester slots were leased from another airline who wanted them back a year later.

Virgin Atlantic’s assessment had been that the number of passengers it brought to its long haul operation – despite the initial inconveniences of having to arrive at Terminal 1 and later Terminal 2, and then transfer to Terminal 3, would be on the order of the British Midland days – some 35% of Little Red passengers. That turned out to be an extarordinary level of wishful thinking. The truth was nearer 5%.

Everyone knew it couldn’t last and it all ended two years later in 2015. The slots went back into the pool. However, British Airways by now had divested itself of its low level holdings in Flybe and by 2016 they saw an opening to get into Heathrow – something quickly agreed to by the CAA.

There was a great deal of pressure on the Government to promise better connectivity for the UK regions form the airport with expansion on the cards, and Virgin Atlantic quickly signed code share agreements with Flybe’s new Heathrow services. They’ve been quite successful, allowing people across the UK to reach the nations premier airport.

Acquiring a stake in Flybe makes a great deal of sense – and it would only be countenanced if Delta were behind the idea. No doubt they see it as a good move to help diversify their hold over part of the UK market, through their proxy control of Virgin Atlantic.

In many ways its yet another example of consolidation. I doubt Virgin would eliminate the brand, and would operate it as a separate business, but nothing is certain in the airline world.