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Flybe collapses! Here’s why I’d buy EasyJet shares in March

Back in January, Flybe appeared to be well on the way to recovery after having stumbled over financial difficulties.

After receiving government backing, it looked like the regional airline would be saved from going bust. However, after only a matter of months, the largest independent regional airline in Europe has now sunk into administration.

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With the collapse of Flybe, a number of key domestic UK routes have terminated. The regional airline operator was responsible for carrying around 8m passengers each year to over 70 airports across the UK and Europe.

On top of this, several UK airports were particularly reliant on Flybe flights and will undoubtedly face a struggle to fill this gap. Take, for example, George Best Belfast City Airport, where approximately 80% of arrivals and departures were operated by Flybe.

In steps EasyJet

Ultimately, people will still need to travel between destination in the UK. Moreover, with Flybe now out of the game, an opportunity presents itself for airline companies such as EasyJet (LSE: EZJ). 

Without Flybe, the Independent reports that there are now no direct flights to and from several key airports in the UK. For example, routes from Belfast City Airport to Manchester, Edinburgh, and Birmingham are no longer viable. Additionally, no services operate from Manchester Airport to Edinburgh, Exeter, or Southampton.

For passengers who need to continue travelling by air between these destinations, the next best alternatives are mostly supplied by EasyJet. For example, it is possible to travel from Belfast International Airport to Manchester, Edinburgh, and Birmingham with EasyJet.

Naturally, once the worries of the coronavirus wrap up, EasyJet should receive an influx of domestic UK passengers who once travelled on the routes operated by Flybe. This presents a potentially lucrative business opportunity for EasyJet. The company has the opportunity to consolidate its position as a reliable airline operator providing domestic flights.

Financial outlook

EasyJet released a positive trading statement in January, highlighting a strong start to 2020. Total group revenue for the quarter ending 31 December 2019 increased by 9.9% to £1,425m. Likewise, passenger revenue increased by 9.7% to £1,124m and ancillary revenue increased by 10.8% to £301m.

Of course, the coronavirus outbreak has dampened demand for air travel, and the prices of airline stocks have plummeted as a result. Caution is called for in light of current market conditions as prices may still have further to fall and as investors struggle to weigh up the economic impact of the virus. Regardless, I think EasyJet appears to be even more of a bargain than it was previously.

Ultimately, the role that Flybe played in terms of providing domestic UK flights should not be underestimated. What’s more, the infrastructure designed to deliver the next best alternative, namely HS2, is over 15–20 years away from completion.

Undoubtedly, airline operators such as EasyJet will seek to capitalise on the gap left in the domestic UK flights market by Flybe. Expect these companies to experience increased passenger numbers and the successful expansion of their regional hubs if an effective strategy is implemented. 

Overall, due to the volatile nature of airline stocks, a bumpy ride can certainly be expected. However, I think those willing to weather the storm over the long term can expect a well-established business strategy and solid financials to provide a strong foundation for profitable growth.

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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.