Company News

UPDATE 2-Higher costs prompt Flybe profit warning in tough year for airlines

* Regional airline warns that interim profit to fall

* Higher maintenance costs weigh on performance

* Flybe is latest example of tough airline market (Adds share price, analyst reaction)

LONDON, Oct 18 (Reuters) - British regional airline Flybe warned on Wednesday that first-half profit would be lower than expected, sending shares tumbling as higher maintenance costs compounded a tough airline market.

Flybe said it would review its maintenance strategy with the aim of improving aircraft performance and costs. It would attempt to enhance the reliability of the Bombardier Q400 turboprop in particular.

Shares fell as much as 18 percent after a warning which comes against a backdrop of intense competition in the sector that has kept prices low and put several larger companies out of business.

Flybe said it now expected a first-half adjusted profit before tax in the range of 5-10 million pounds ($6.6-$13.2 million), down from 15.9 million pounds in the first half of its 2016-17 year.

“While half-year profits are lower than expected, I am confident that we are still on a clear sustainable path to profitability in line with our stated plan,” CEO Christine Ourmieres-Widener said in a statement.

“The increased maintenance costs are disappointing, but we are already addressing these in the second half and remain focused on improving our cost base and reliability performance.”

This year has been a tough one for the airline sector, with Air Berlin, Alitalia and Monarch all going into administration.

They struggled to stay competitive as rivals laid on more seats to vie for market share, hitting fares.

Analysts at house broker Liberum said that the announcement was a “clear disappointment” in the short term, and that overcapacity in the industry could also weigh on the stock.

“Until there is greater clarity on maintenance costs, along with further evidence of capacity cuts supporting better unit revenue trends, we believe the shares will struggle to perform,” the analysts at Liberum said in a note.

Flybe said it would provide further information in its interim results on November 9. ($1 = 0.7586 pounds) (Reporting by Alistair Smout and James Davey; editing by Kate Holton/Keith Weir)