Flybe chief executive Saad Hammad has a confession to make.
When he first heard of the regional airline he now leads, he thought it was pronounced “Flibber”.
He was chief commercial officer of easyJet at the time – a role he carried out between 2005 and 2009. “I didn’t know who Flybe were,” the aviation chief admits. “It operated really below the radar screen.”
He may not have known how to pronounce its name but Hammad could see even back then that Flybe was heading towards storm clouds.
“I could see the business was in trouble. I could see the signs of challenge in what they were doing in terms of the strategy and, critically, the execution. It’s not so much the concept behind the business, it’s more how the business has gone about delivering that concept,” he says.
In August, after a four-year sojourn in the private equity world, at the Gores Group, Hammad walked through the doors of Exeter-based Flybe with a brief to turn around the failing carrier. He was born in Lebanon but has been in the UK ever since being sent to boarding school in East Sussex at the age of seven.
His original hunch about Flybe had turned out to be right. Since it was brought to market at 295p in December 2010, spurred on by Bank of America Merrill Lynch, Flybe has issued five profit warnings. In June, it posted annual pre-tax losses of £40.7 million, with debts reaching to £66.3m.
He had been eyeing up the move since March and knew roughly what he was in for. Even so, once he got his hands on the controls, he realised Flybe was heading towards a harder landing than he originally feared.
“The problems were a lot more deep-seated than I had anticipated,” he admits. “It needed immediate action. There wasn’t solidity and robustness to how the business operated. It was very much hand-to-mouth.”
A programme to strip out costs and reduce the airline’s workforce by 600 staff was already under way when Hammad signed his contract. It had been implemented by Jim French, the Godfather of Flybe, who had spent 23 years growing the airline from a minnow, previously called Jersey European Airlines, into Europe’s largest regional carrier with a fleet of 96 aircraft.
The Oxford and Sorbonne-educated Hammad is careful to pay due respect to French, who moved from executive chairman to chairman upon the new chief’s arrival in August.
Just three months later French decided to head for the exit for good and was replaced as chairman by Simon Laffin, former finance director of Safeway before the supermarket chain’s £3bn takeover by Morrisons in 2004.
Hammad insists that a “big debt of gratitude” is owed to French. “I want you to publish that please,” he entreats. “I really want to make sure it’s recognised that Jim is the architect of Flybe and its development and good on him for stepping down at the right moment.”
Niceties aside, Hammad’s assessment of what the ancien regime left behind is stark.
“Even with the [previous cost-cutting] actions taken, we would have been one of the highest unit cost airlines in the world,” he says. “Not just the UK but worldwide. There had been an absence of a cost culture here.”
The statistics to back up Hammad’s arguments are startling. The average age of Flybe’s aircraft fleet is five and a half years and yet its jets were up in the air for little over five hours a day. In 2011, Flybe’s pilots flew an average of 374 hours compared to 813 at easyJet.
Out of 158 routes, 61 were not covering their fixed costs. In many respects, it’s a miracle Flybe still exists.
“The good news is credit to Jim and the team, the business survived,” says Hammad. “Many airlines have fallen by the wayside when these things get out of control.”
But for Hammad, this is more than just a survival game. “I didn’t come on board to oversee the demise of a business,” he stresses.
Hammad is pushing through a two-year plan to bring Flybe’s costs under control.
It didn’t take him long to make his mark. Within six weeks of getting his feet under the table, Hammad had reformed the boardroom. Three of its top managers, tipped as potential successors to French, were out the door. These included Andrew Strong, head of Flybe UK, Mike Rutter, who headed the airline’s outsourcing arm and corporate strategy director Mark Chown. Chief financial officer Andrew Knuckey also said he would step down as soon as a replacement was found.
Hammad refuses to talk about individuals. But, echoing the same phrases used by Thomas Cook boss Harriet Green when she first took the helm of the recovering holiday giant in 2012, he says Flybe had built up unnecessary “silos”.
“It wasn’t one airline, it was like 14 different airlines,” he says.
The clear-out hasn’t stopped at the boardroom, however. Hammad has signalled another 500 job losses on top of the 600 already pushed through. The airline remains in consultation with staff – a process that will come to an end next month. [JAN]
When we meet, Hammad has just returned from a tour of Flybe’s 14 bases and offices across the UK and spoken “face to face” with 850 of the airline’s workforce.
He looks haunted by the experience.
“[There was] clearly a lot of emotion, a lot of disappointment,” he says. “I found it personally really hard and it’s not the fault of our workforce. I made a vow to myself, I never want to have to do this again in this airline.
“I wanted to really make sure people understood it and the logic of it and be open about how there is a future here but we have to do the surgery otherwise there is no future.”
Hammad says he has mixed feelings about what the next 12 months will hold. He is part “full of anguish” about the job losses but part “full of excitement about what is possible”.
The City, though, has responded well and Flybe’s shares rose almost 50pc in the two days following his strategy announcement in November. Then another surprise hit.
Rosedale Aviation Holdings, Flybe’s long-standing majority shareholder, took the opportunity of the sharp uplift in the airline’s share price to sell its entire 48.1pc stake. Rosedale represents the estate of the late Sir Jack Walker, the former owner of Blackburn Rovers Football Club.
Sceptics initially interpreted the move as a thumbs-down to Hammad’s strategy but following a fall on the day of the announcement, the shares have continued to gain altitude.
Hammad stresses Rosedale’s decision was down to a change in trustee and investment priorities. He believes the new, more diverse investor base will be good for the airline. Several big institutions joined the shareholder register for the first time, while existing investors, including George Soros’s Quantum Partners, upped their holdings.
“They [Rosedale] were really supportive of me and the strategy,” he says. “It was serendipitous. With their exit we were able to bring on some of the bluest chip institutions in the UK – we got Schroders, Artemis and Standard Life. Frankly, those names would not have come on board if they had doubts about the strategy going forward.”
Following a relentless first four months in the job, Hammad hopes that next year he can start talking about growth. He believes Flybe has a strong future as “the 90-minute airline” connecting regional cities throughout Europe.
Although Flybe has had its problems, Hammad argues, the idea behind the regional airline is as relevant today as when its predecessor company started out in 1979.
Legacy airlines are pulling out of regional airports and are only serving “big thick routes”, he says. Low-cost carriers often don’t fill the void as there isn’t enough demand to fill their large aircraft, or they aren’t able to offer the frequency required.
Flybe, which has always opted for smaller Embraer or Bombardier jets, has an opportunity to connect business people and families living in the regions who are in danger of being left out in the cold by other forms of transport infrastructure, Hammad says.
“For people who want to connect, say, from Aberdeen to Birmingham, a flight with Flybe is one hour and 30 minutes,” says Hammad. “You take the train it’s almost eight hours. Birmingham to Edinburgh, we are 25pc cheaper than the train and we are more punctual.
“If Flybe didn’t exist it would be necessary to invent it,” he says.
Name: Saad Hammad.
Born: 1962 in Lebanon.
Education: Oxford, INSEAD.
Home: Somerset and London.
Career: Mainly operational and commercial roles, including Managing Director-Europe at Tibbett & Britten, Chief Commercial Officer at easyJet and Operating Partner at US private equity firm, the Gores Group.
Not many people know that… I have always wanted to write a musical. Though I think I may be tone-deaf.