Analyst and Investor Day 8 July 2011

1

Introduction Jim French Chairman & Chief Executive Officer Andrew Knuckey Chief Financial Officer

Timetable 10:00 – 11:30

Tours of MRO and Training Academy

11:30 – 12:45

Presentations - Introduction and welcome - European strategy (inc Finncomm)

12:45 – 13:30

Lunch

13:30 – 14:30

Presentations - Fleet acquisition and financing - Revenue management - Product and ancillary developments - Summary

15:00

Flight to Southampton

Simulator sessions through the day 3

Jim French and Andrew Knuckey Mark Chown and Mike Rutter

David Attenburrow Fred Kochak Mike Rutter Jim French

Overview • Solid trading performance – £22.3m underlying PBT for 2010/11 – 2011/12 guidance – PBT broadly in line with 2010/11 underlying PBT

• Long term strategy - on track – Capitalise on UK recovery • Revenue management and product innovation key – Flexible and cost effective fleet plan to 2020 – Acquisition of Finncomm in joint venture with Finnair

• Business is in good shape – Well placed to capitalise on opportunities in UK and Europe – Management re-organisation 4

Financial Highlights •

Revenue up 4.4% to £595.5m

•

Passenger yield up 5.0% to £76.15

£595.5m Revenue – up 4.4%

•

Passenger revenue per seat up 2.0% to £46.96

•

Costs per seat (at constant currency) down 1.4% to £50.68

•

Underlying EBITDAR(1) improved 30.9% to £119.0m

•

Underlying profit before tax up 201.4% to £22.3m

•

Operating cash inflow improved by 21.5% to £18.1m

Underlying EBITDAR – up 30.9%

•

Net cash of £21.9m vs net debt £(21.4m) at March

•

Net assets £107.9m

(1) (2)

£119.0m

Underlying EBITDAR comprises underlying PBT and adds back interest, depreciation, amortisation and aircraft rental charges Net cash/net debt comprises total cash (including restricted cash) less borrowings

5

2010(2)

£22.3m Underlying PBT – up 201.4%

£107.9m Net assets

Flybe European Strategy European Regional Aviation Landscape Mark Chown Deputy Chairman

European Regional Market - c150m Pax The Company views its target market as the European regional aviation market, defined as follows:

Total Continental European Regional Market(1)

6.7 Sweden

7.1 Finland

11.0

An estimated 150m passengers

150m pax

Norway

Routes of 400k pax per year or less

9.5 Denmark 6.5

Served by aircraft of 120 seats or less

Benelux

3.8

31.0

Poland

Germany

14.4

Primarily point to point avoiding serving the principal hub airports

France

9.2

11.5

Austria

Switzerland 1.1 Portugal

17.2 13.0

Spain

Italy 7.6 Greece

2009 Passengers (m)

Flybe has Substantial Scale – Europe’s Largest Regional Airline oneworld Star Alliance

6.4

0.3 Air Southwest

Baboo

bm i regional SATA Air Acores Avia Express

0.4 0.4 0.4 Air Iceland

____________________ Source: Management estimates based on OAG and Eurostat Jan-Oct 2009 annualised (Management estimates market size accurate within 15% margin of error) 7 (1) Size estimate per Airline Business Magazine, 2009 figures

Carpatair

Eastern Airw ays Contact Air Flugdienst

0.5 0.5 0.5 0.5 0.5 0.5 0.5 Loganair

0.9 0.8 0.7 0.6 Golden Air

0.9

BA CityFlyer

1.0

Aer Arann

1.0

Finncom m Airlines

1.3

EuroLOT

1.5

Blue1

1.6

M alm o Aviation Augsburg Airw ays Alitalia Express

1.6

CCM Airlines Air Dolom iti

CityJet

2.1 2.0

W ideroe

Eurow ings

2.8 2.6 2.5 2.4

Cirrus Airlines

Skyteam

Binter Canarias Swiss European

Brit Air

Regional

Aegean

Lufthansa CityLine KLM cityhopper Air Nostrum Tyrolean Airw ays

5.0 4.7 4.5 4.0 3.6

air Baltic

Pax (m) 6.7 6.6

European Regional Aviation Landscape Network Carrier Owned Regional Airlines LH

• Cityline • Tyrolean AF/KLM

• KLM Cityhopper • • • Brit Air Features - Hub feed - Some point to point

Regional City Jet

Independents

Network Carrier Franchised or Controlled Airlines

Examples

Examples

• Eastern • Malmo Aviation • Binter Canarias

• Air Nostrum • Sun Air • Airlinair

Features

Features

- Sub scale - some cost benefits - Independent - Many loss making

- Hub feed - Some point to point

8

European Regional Aviation Landscape Pace of change/rationalisation accelerating – Why? Network Carrier: Owned, Controlled or Franchised

• • • •

Independents

• •

Cost creep, heavily loss making Dichotomy between point to point and network profitability Driven by growth of World Wide hubs Leading to review of role of owned regional airlines

• • •

Sub scale – weak/no brand Reliant on majors, who dictate business model, brand ethics, etc. Stepping on LCC toes Wrong aircraft, loss making Change happening faster than ability to react

Opportunities for Flybe

Opportunities for Flybe

-

-Acquisition -Consolidation -Franchise -Organic growth

BA divestment of Connect provides one model Codeshare or contract flying as alternatives Finnair partnership is further model Contract Flying 9

European Regional Aviation Landscape “Every (Regional) airline in Europe is for sale!” sale!” Quote from Director of M & A at Major Airline

Time now ripe for consolidation

•

New style partnership (Finnair)

•

Recognising role of regional airlines

•

Flybe

Ability for regional airlines to make money flying point to point, as well as feeding hubs

10

•

Potential pan-European brand

•

Economies of scale

•

Very strong relationships

•

In the deal flow

Acquisition Criteria Five critical areas considered:

• Must be regional • Introduce brand and ancillary model • Rationalise route network • Rationalise fleet • Remove overhead costs …………… and seek a minimum 15% PBT return on investment in 2nd full year 11

Partnership Criteria Before entering into any long-term partnership, we ask ourselves five questions:

• Is it a regional? • Does it fit our strategy? • Is it affordable? • Is it digestible? • Can we work with them? 12

European Strategy Outlined at IPO Target markets

• •

France – Air France/KLM relationship Nordic/Baltic – Finnair

Nordic/Baltic market

• •

Fragmented regional airline market place

•

Baltic region has good economic growth prospects

Legacy carriers’ business model under pressure in regional sector

Finland

• • •

High propensity for air travel Higher yields Attractive geography for Flybe

• • • 13

Significant percentage of flights cross water Limited road and rail competition Short, high frequency sectors

Flybe Nordic – JV with Finnair Partnership vision – “to create the largest and most profitable regional airline in the Nordic and Baltic States” • 60%:40% joint venture between Flybe and Finnair • Flybe’s role as 60% JV partner – –

–

•

Strengthen Finnair’s Helsinki hub by developing feeder services Introduce Flybe’s – regional airline business model to Nordic and Baltic states – ancillary revenue model – retail brand with high level of direct distribution Expand ‘point to point’ flying to Nordic and Baltic states

Finnair’s role as 40% JV partner – – –

Assets help smooth entry – brand, distribution, loyalty programme, Reduce risk through contract flying c50% Aircraft provided at market rates 14

Why Acquisition of Finncomm? • Lower risk entry than organic development • Avoids significant startstart-up losses on new routes • Operational infrastructure already in place • Substantial support from Finnair

15

Flybe Nordic’s First Acquisition - Finncomm •

Acquisition of Finncomm – 100% of Finnish Commuter Airlines (‘FCA’) – 46% of Finnish Aircraft Maintenance (‘FAM’) – Will be equity accounted, not consolidated

•

Comparison to BA Connect Finncomm BA Connect (2011) (2007) 23 50 Routes 0.9m Passengers 3.2m €90m Turnover £325m 15 39 Aircraft 400 Employees 1,600

Acquisition price €25m plus net cash – Flybe €12m, Finnair €13m, completion subject to competition clearance – Total Flybe investment up to €23.6m, Including net cash and loan repayment

•

Business plan – Flybe share of loss in year of acq’n c€(3m) – Break-even in 1st full year, then 15%+ return on investment in 2nd year, JV turnover c€100m

16

Flybe European Strategy Flybe Nordic - JV with Finnair & Acquisition of Finncomm Mike Rutter Chief Commercial Officer

Flybe Nordic’s First Acquisition - Finncomm •

Acquisition of Finncomm – 100% of Finnish Commuter Airlines (‘FCA’) – 46% of Finnish Aircraft Maintenance (‘FAM’) – Will be equity accounted, not consolidated

•

Comparison to BA Connect Finncomm BA Connect (2011) (2007) 23 50 Routes 0.9m Passengers 3.2m €90m Turnover £325m 15 39 Aircraft 400 Employees 1,600

Acquisition price €25m plus net cash – Flybe €12m, Finnair €13m, completion subject to competition clearance – Total Flybe investment up to €23.6m, Including net cash and loan repayment

•

Business plan – Flybe share of loss in year of acq’n c€(3m) – Break-even in 1st full year, then 15%+ return on investment in 2nd year, JV turnover c€100m

18

Finncomm – Current Status •

Estimated 34% of Finnish domestic marketplace

•

•

34%

Year to 31 December 2010

• • • •

• • •

15% own brand, 19% contract flying for Finnair

Finnish domestic market share

0.9m passengers own risk and contract flying Turnover €90m pax + contract flying 15 aircraft Circa 400 employees

0.9m Passengers in 2010

Headquartered at Seinä Seinäjoki

€90m

Privately owned Occupy leased, modern facilities at Helsinki Airport and administrative offices at Seinä Seinäjoki

Turnver in 2010

15 Aircraft in operation

19

Finncomm Today

Finncomm Existing Operations •

•

ENF

74% of existing routes Finnish domestic

Scope for expansion in Nordic and Baltic States

KTT

KOK VAA SJY POR TKU TMP

KEM

KAO

JYV

KUO JOE VRK SVL

HEL TLL

NRK RIX GDN

VNO

OTP 20

Flybe Nordic • • •

Joint venture - 60% Flybe and 40% Finnair Flybe brand on all JV aircraft Dimension – 2012/13 first full year

• •

•

circa 1.5m passengers (Flybe 7.2m)

Risk profile

• •

•

circa 40k sectors (Flybe 140k)

c50% scheduled c50% contract flying

Aircraft

•

15 leased aircraft (9 ATR 72s, 4 ATR 42s, 2 E170s), plus 3 delivery positions on ATR 72s 21

The Turnaround Plan • Apply Flybe business model - Retail branding, internet distribution, ancillary revenues

• Revised route network • Revised commercial terms for aircraft • Revised contract flying terms (50% of activity) • Reduce costs by applying volume discounts, for fuel, aircraft insurance etc.

22

Outline Timetable • 1 July 2011 - Deal announced - Subject to competition clearances

• August 2011 - Expected - Announce revised new route structures, including: – Revised fleet deployment – New point to point route structure

• 29 October 2011 (IATA Winter) - New schedule operational 23

Landscape of Nordic/Baltic Market Nordic Carriers •Air Air Baltic Corporation 3.2m pax pax¹ •Cimber Cimber Sterling 2.3m pax pax² Wideroe’ •Wideroe 2.1 pax¹ Wideroe’ s Flyveselskap 2.1m •Blue Blue 1 – 1.6m 1.6 pax¹ •Malmo Malmo Aviation 1.3 1.3m pax² •Finncomm Finncomm Airlines 0.9 0.9m pax¹ •Golden Golden Air Flyg 0.6 0.6m pax² •Skyways Skyways 0.5 0.5m pax²

Fragment and subscale regional carrier market

Key: Bid for / owned by Igor Kolomoisky Owned by SAS

Opportunity for Flybe in Opportunity space created for Flybe in space created

Stimuli's of LCC competition to change market - Norwegian

Turbulent network carrier market - SAS - Finnair NOTES: ¹ = 2010 data ² = 2009 data

24

The Expansion Plan • Build on Flybe business model to stimulate market • Develop international and domestic flying in other Baltic/Nordic States - Acquire sub scale airlines

- Develop new bases organically - Increase feeder services

• Vision for Flybe Nordic in 44-5 years - 30-50 aircraft - 4m+ pax

25

Questions and Answers

26

Fleet Acquisition and Financing David Attenburrow Director of Fleet Acquisition and Financing

Aircraft Financing – Flybe Snapshot Embraer 118 118--seat E195 regional jet

•

14 in service, all on operating lease

88--seat E175 regional jet Embraer 88

• •

35 firm orders, delivery to 2016 (4 due for delivery in 2011/12) 60 options, 40 purchase rights

78--seat Q400 turboprop Bombardier 78

•

55 in service at March 2011 (10 owned and debt financed, 45 operating leases)

•

2 delivered to date in 2011/12, 1 more scheduled for delivery this year (all financed by EDC)

• •

15 options 9 earmarked for disposal or lease handback in 2011/12 (inc today’s sale of 3 aircraft to RMB) 28

Aircraft Financing – Flybe Snapshot Aircraft financing

•

Credit/asset blend

• • •

Flybe – strengthening credit E175/E195 – strong asset Q400 – emerging asset

Financing through the cycles

• •

42 new aircraft financed from 2007 credit crunch to December 2009 Financings delivered on time and on budget

Aircraft finance partners

• •

13 banks, 8 different countries 7 lessors, 5 different countries 29

Ownership vs Operating Lease • • • • • • •

Operating Leases

Ownership/Loan

Aircraft Residual Value Risk

No Flybe risk

Flybe fully exposed

P&L Impact

Sub-optimal

Cash Impact

Benefit at delivery (95%-100% financing)

Interest reduces, depn depends on residual value Cash drain at delivery (80%-85% financing)

Tax Impact

Capital allowances

Capital allowances

Balance sheet

Off balance sheet

On balance sheet

Limited

Flexible

Available to Flybe

Very available to Flybe

Flexibility Availability

To date, Flybe has pursued a predominantly operating lease strategy due (i) less cash outflow on delivery and (ii) residual value risk on aircraft type 30

Embraer E175 Order E175 order provides flexible growth options •

Seat capacity growth between 24%(1) and 120%(2) at Flybe’s option through October 2016

•

Directors expect that operating E-175 jet will give similar cost advantages to Q400

•

Jet aircraft product and reduced flying time for longer routes

•

Maintains two-type fleet model, improves crew efficiencies

•

2x2 seating

Highly attractive deal terms •

35 firm aircraft, 60 options, 40 purchase rights

•

Flexibility to acquire any E-series aircraft (78122 seats) on these terms

•

85% loan to value financed at attractive interest rates

“Sharing more than 86% commonality with the Embraer 195, the E-175 will continue meeting Flybe's stringent requirements for cost efficiency and high levels of comfort and functionality” Paulo Cesar de Souza e Silva, Embraer Executive Vice President 20 July 2010

____________________ (1) Assuming delivery of 35 88-seat E-Series aircraft and 4 78-Seat Q400 currently on firm order (2) Assuming delivery of aircraft on firm order per above, exercise of options to acquire 77 further E-Series jets and 12 Q400 turboprops, and extension of current operating leases for a secondary term up to a maximum of 15 31 years

Embraer E175 Financing Detailed Letter of Intent agreed 14th April 2011

•

Governed by OECD Aircraft Sector Understanding (“ASU”)

•

All 35 Flybe firm aircraft covered by 2007 ASU (more favourable than 2011 ASU)

•

Additional 10 option aircraft covered (if needed)

•

Interest Rate less than 200bps

•

Finances 85% of the aircraft price

•

Contract documentation progressing now

Following strengthening of cash position post-IPO and BNDES financing arrangements, Flybe will pursue an ownership strategy for the majority of its E175 aircraft orders

32

Scale and Progress $1.5 billion raised in closed/committed financing for the Q400 & E195 fleet to date Average 95% LTV across 74 aircraft

33

Scale and Progress Embraer E175s Agreement from BNDES for 85% LTV lending – facility of >$1bn Flexible lending – 15% excess may be Flybe capital or 3rd party equity (op lease). Competitive margin 60days

£20

15%

50-60 days

£40

40%

40-49 days

£60

50%

20-39 days

£80

60%

10-19 days

£100

70%

3-9 days

£200

80%

0-2 days

£300

90%

40

Revenue Management in Practice • Theories rely on historic data But… But….

• Economic cycles change • Capacity and pricing changes can be erratic • Several competitors for regional air travel • Car • Train • Ferry • Other airlines • Alternate destinations • OneOne-off events influencing demand are frequent 41

Revenue Management: Driven by Retail Model • Flybe Revenue Management is dynamic and data driven • Daily tracking of competitor fare availability • Fare rules that promote stable and accurate revenue forecasting

• Recognising sales within seconds and using the information to evaluate pricing initiatives and promotional activity in near realreal-time

42

Revenue Management: Driven by Retail Model

Cut to live demonstration of data analysis

43

Product and Ancillary Revenue Developments Mike Rutter Chief Commercial Officer

Constant Evolution of Product Platform Economy

•Lowest fare available from A to Z. Delivered safely and comfortably

•Pay to add on services (e.g. bags, onon-board food)

Economy Plus

•Fully bundled product •Lounge access •Ticket flexibility •Vouchered inclusive onon-board services

•

2003 - Creation of unbundled and bundled (Economy Plus) product offerings

• • •

2005 - Introduced baggage charging - Introduced advanced seat assignment charge 45

2007 - Introduced Rewards4All loyalty programme - Increased own lounge availability post BA Connect acquisition

2008 - Rolled out Flybe credit card as part of financial services objectives

Product Development Supports Revenue Growth • • •

Flybe has had for many years a ‘balanced strategy’ when it comes to yield and ancillary revenue growth. Total ancillary revenue not to exceed 20% of total revenue. Strategy protects us against ancillary risks, and maintains a balanced product proposition Top 10 Global Performer – Ancillary Revenues

Strong Ancillary + Yield Growth 2010/11 2010/11

2009/10 2009/10

Change Change

Ticket revenue (£m)

446.8

434.7

+2.8%

Ticket yield (£)

62.35

60.56

+3.0%

Ancillary revenue (£m)

98.9

86.0

+15.0%

Ancillary yield (£)

13.80

11.98

+15.2%

Total passenger revenue (£m)

545.7

520.7

+4.8%

rd

Maintenance revenue - 3 party (£m)

24.0

28.2

(14.9)%

Other revenue

25.8

21.6

+19.4%

Total other revenue (£m)

49.8

49.8

-

Total revenue (£m)

595.5

Note 1: Source: Amadeus 2010 review of ancillary revenue results

570.5

Top 10 Airlines – Ancillary Revenue per Passenger (euros)¹ (euros) Annual Results - 2010 Strong yield growth Strong ancillary growth

Strong total revenue growth

+4.4%

46

€29.45

AirAsia X

€26.24

Qantas

€24.23

United Continental

€24.20

Jet2.com

€23.20

Allegiant

€17.76

Spirit

€17.67

Aer Lingus

€16.72

Alaska Airlines

€16.06

Delta

€14.84

Flybe

Medium Term Challenges to Ancillary Trajectory

47

Launch of Flybe Essentials – A 3rd way of buying the Flybe product

Evolve Product Strategy to meet these Challenges Introduction of Flybe Essentials

• •

•

•

Bundled ancillary product Allows Flybe to offer 3 routes to product delivery • A la Carte • Essentials • Premium all inclusive Helps negate regulatory concerns on credit/debit cards

Additional services selling opportunity Implementation this year subject to IT development

Other Key Product Initiatives for 2011/12 Productivity & Loyalty Productivity and Initiatives Retention Retention Initiatives

Revenue Initiatives

• • • • •

Ancillary revenue variable charges on a route by route basis Price led bundles Already launched – student baggage deals ‘Fly early’ – new revenue stream Economy plus upsell served to 100% of pax

• • •

Initiatives ‘Anytime check in’ initiative Mobile/SMS check in Fast track security bundled into economy plus

• • • • • •

Loyalty Initiatives Relaunch the Frequent Flyer programme by Autumn 11 with the following objectives: Better reward those passengers that drive most revenue for Flybe Add wider breadth of earn and burn partners • Allow elite tier recognition Allow reward accrual on ancillary products Ensure the scheme is suited to use by GDS channel bookers Implementation will be dependent on IT delivery

Innovations Combined with ‘Back to Basics’ Basics’ Advertising - To help Drive Revenue Growth and Market Share

• Continuing history of product innovation

• Continuing history of aggressive promotions

• Continuing to invest in, and benefit from, a well positioned retail brand

Summary Jim French Chairman and Chief Executive Officer

Outlook and Summary • •

Against challenging backdrop, a year of progress 2011/12 outlook – Forward ticket sales revenue ahead YOY by 8% on broadly flat capacity – 2011/12 guidance – PBT broadly in line with 2010/11 underlying profit before tax

•

European expansion – – – –

• • • •

Air France codeshare Finnair joint venture and Finncomm acquisition Further opportunities being evaluated Replicate Flybe’s successful business model in Continental Europe

Cost effective and flexible fleet plan to 2020 Continued focus on revenue management and products and ancillary revenue innovation Well placed to capitalise on UK recovery and continue European expansion Look forward to future with confidence 52

Analyst and Investor Day 8 July 2011

53

Legal Disclaimer This presentation has been prepared by Flybe Group plc (the “Company”). This presentation does not constitute or form part of any offer to sell or issue, or invitation to purchase or subscribe for, or any solicitation of any offer to purchase or subscribe for, any securities of the Company or in any other entity, nor shall this document or any part of it, or the fact of its presentation, form the basis of, or be relied on in connection with, any contract or investment decision, nor does it constitute a recommendation regarding the securities of the Company or any other company. The information contained in this presentation has not been independently verified. This presentation does not purport to be all-inclusive or to contain all the information that a prospective investor in securities of the Company may desire or require in deciding whether or not to offer to purchase such securities. No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its affiliates (within the meaning of Rule 405 under the US Securities Act og 1933) (“Affiliates”), members, directors, officers or employees or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this presentation or any other material discussed verbally. None of the Company or any of its Affiliates, members, directors, officers or employees nor any other person accepts any liability whatsoever for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection therewith. The information in this presentation includes forward-looking statements which are based on the Company's or, as appropriate, the Company's directors' current expectations and projections about future events. These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussion of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements, as well as those included in any other material discussed at any analyst presentation, are subject to risks, uncertainties and assumptions about the Company and its subsidiaries and investments, including, among other things, the development of its business, trends in its operating industry, and future capital expenditures. In light of these risks, uncertainties and assumptions, the events or circumstances referred to in the forward-looking statements may differ materially from those indicated in these statements. Forward-looking statements may and often do materially differ from actual results. None of the future projections, expectations, estimates or prospects in this presentation should be taken as forecasts or promises nor should they be taken as implying any indication, assurance or guarantee that the assumptions on which such future projections, expectations, estimates or prospects have been prepared are correct or exhaustive or, in the case of the assumptions, fully stated in the presentation. Forward-looking statements speak only as of the date of this presentation. Subject to obligations under the listing rules and disclosure rules made by the Financial Services Authority under Part VI of the Financial Services and Markets Act 2000 (as amended), neither the Company nor any of its affiliates, or individuals acting on its behalf, undertakes to publicly update or revise any such forwardlooking statement, whether as a result of new information, future events or otherwise. As a result of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements as a prediction of actual results or otherwise. The information and opinions contained in this presentation and any other are material discussed verbally are provided as at the date of this presentation and are subject to verification, completion and change without notice. In giving this presentation, neither the Company nor its advisers and/or agents undertakes any obligation to provide the recipient with access to any additional information or to update this presentation or any additional information or to correct any inaccuracies in any such information which may become apparent.

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