Flybe's shares plummet as the budget airline announces drop in passenger revenues

Budget carrier Flybe's shares tanked almost 22% after the company said it does not expect to make a profit in its current financial year.

The Exeter-based company is a year into a three-year turnaround plan sparked by a drop off in passenger numbers brought on by the financial crisis.

It has cut over 1,000 jobs, ended flights on unprofitable routes and reduced its seat capacity by 6.1% to 2.5 million, but investors are yet to see the fruits of its labour.

The need to keep fares low has resulted in a 5.2% reduction in its passenger yield to £67.65 and its overall revenues in the final three months of the year were down 3.8% to £126.8 million.

The company said it expects to break-even in the financial year, which runs to March 31, compared to a City forecast for pre-tax profit of around £9 million.

Flybe also warned that it will not benefit from the recent fall in oil prices as its long-term hedging policies will be in force until the 2016/2017 financial year.

The carrier had posted its first pre-tax profit in four years last June but swung back to a half-year loss by November due to one-off costs and a charge related to the exit from its loss-making joint venture, Flybe Finland.

Chief executive Saad Hammad said: "Flybe's improvement in its core UK business continues to progress.

"Only a year into our three-year transformation we now have a platform which enables us to compete in a tough environment where the consumer demands value.

"We have responded to that by keeping our fares low and launching new routes."

Looking ahead to the coming three months, the firm said seat capacity was set to jump 14% to around 2.6 million seats, though passenger revenue per seat would be down by 3%.

Additional reporting by Press Association