Scottish regional carrier Loganair recorded its first annual loss for 17 years in 2017-18—the cost of a breakup with larger regional partner Flybe.

Its chairman said the loss had been predicted, but that made it no less painful.

Glasgow-based Loganair operates a network of routes throughout the Scottish Highlands and Islands, as well as services to elsewhere in the UK and Norway. It incurred a pre-tax loss of £8.9 million ($11.8 million) for the year ended March 31, 2018. Net loss figures were not provided.

The deficit, Loganair said, was the result of the aftermath of the breakup of a franchise agreement with Exeter-based Flybe and subsequent competition from its former partner on key routes.

Loganair now operates once again under its own name, after a lengthy period as a franchise operator for other carriers.

The cost of Loganair re-establishing its own brand and back-office functions was put at £2.98 million.

Delays in newly negotiated codeshare agreements with partner airlines and travel agency booking channels going live resulted in a loss of bookings via these platforms, at a cost of £2.09 million.

“But most damaging of all,” Loganair said, “was the announcement by Flybe that it was entering a new franchise agreement with Eastern Airways and would compete head-to-head on six routes, including five key routes to airports in Loganair’s Highlands and Islands heartland.

“Six months of this competition, which involved a financially disastrous price war and significant over-capacity for both airlines, ended in a positive conclusion for Loganair—but at a cost of £6.8 million.”

Removing these non-recurring items from the equation, Loganair would have an underlying pre-tax profit of £2.95 million.

On the positive side, Loganair achieved a record turnover of £110.7 million, a 7% increase from £103 million for the preceding financial year.

Passenger numbers rose 6.2% to an all-time high of 812,541, but load factor fell from 62.8% to 59.8%, due to the overcapacity on routes with Flybe competition.

The re-launch of Loganair’s services in its own right allowed the renewal of a codeshare agreement with British Airways (BA), giving a direct link for bookings and through-baggage for customers accessing BAs’ global network.

A further codeshare agreement with bmi regional started during the year and similar interline partnerships were introduced with international airlines KLM Royal Dutch Airlines, Air France and Thomas Cook.

“This year’s results bring to an end 17 consecutive years in profit for Loganair, and the fact that we forecast last year that we would be loss-making in 2017/18 makes it no less painful,” Loganair chairman David Harrison said.

“The extent of the loss is a direct result of competition on six of our eight largest routes, and from the outset we maintained that the markets on these routes were simply not big enough to sustain the level of seat capacity being introduced. This indeed proved to the case.”

Alan Dron