(Reuters) - Flybe Group Plc FLYB.L is in talks for a possible sale to Virgin Atlantic Airways Ltd, the British regional airline said on Friday, as it grapples with falling demand, higher fuel costs and a weak British pound.
Flybe said earlier this month it was in talks with potential buyers, but added it was also looking at other options, such as further reductions in capacity and costs.
Airlines have been looking to consolidate in many markets because of rising running costs, largely higher fuel prices, and increased competition from budget carriers. Icelandair (ICEAIR.IC) agreed to buy rival WOW this month.
Shares of Flybe rose as much as 53.2 percent to 14.8 pence on Friday after Sky News reported late on Thursday that Virgin Atlantic, founded by billionaire Richard Branson, was in talks about a takeover bid for Flybe.
Virgin Atlantic said it was reviewing options for Flybe, including a possible offer for the London-listed company.
The options also include an enhanced commercial arrangement, Virgin said, adding that it already has a trading and codeshare relationship with Flybe.
Virgin Atlantic closed its British domestic airline network Little Red in 2015 after it was “not able to make a positive contribution” to the group and following a review of its network that had put emphasis on its transatlantic routes.
A deal would give the airline, part owned by U.S. carrier Delta Air Lines Inc (DAL.N), access to Flybe’s 192 routes serving 14 countries from 75 departure points in the UK and Europe.
A spokesman for Flybe declined to comment on other potential buyers. Sky News had previously reported that Stobart Group (STOB.L) was likely one of the potential suitors for Flybe.
The British infrastructure and support services company had scrapped plans to buy Flybe in March after being rebuffed.
Flybe, which flies 76 aircraft, has a market capitalization of about 20.8 million pounds ($26.68 million), according to IBES data from Refinitiv, after its shares fell over 50 percent this year.
The company’s stock plunged after a profit warning last month, underscoring challenges that are also affecting bigger European rivals including Ryanair (RYA.I) Wizz Air (WIZZ.L) and easyJet Plc (EZJ.L).
Virgin Atlantic is being advised by Rothschild & Co, while Evercore is acting as financial adviser to Flybe and Numis and Liberum as broker to Flybe.
Reporting by Noor Zainab Hussain in Bengaluru; Editing by Shinjini Ganguli