This week, news of the UK’s longest-running airline collapsing hit the news. The headlines were gloomy: 110,000 passengers stranded, 2,100 staff without jobs and a huge and costly repatriation service underway, funded by the taxpayer.
In the early hours of Monday morning, as administrators from KPMG began the thankless task of winding down the business, passengers due to take a Monarch flight received the text message: “Important! Monarch has stopped operating. Please do not go to the airport.” Sent out by the Civil Aviation Authority (CAA), this ignominious message signalled the end of a proud and much-loved 49-year-old company.
Andrew Swaffield, Chief Executive of Monarch, addressed staff who lost their jobs, saying: “Many of you have spent years working for this company and I want to thank you again for your service and loyalty. I am truly sorry that it has ended like this.”
The repatriation effort is the UK’s biggest-ever peacetime airlift, using over 30 chartered planes, including jets from Qatar Airways, to ferry stranded passengers back home at an average cost of £545 per passenger.
The CAA’s chief executive, Andrew Haines, said: “We are putting together, at very short notice and for a period of two weeks, what is effectively one of the UK’s largest airlines to manage this task.
“The scale and challenge of this operation means that some disruption is inevitable. We ask customers to bear with us as we work around the clock to bring everyone home.”
In the wake of Monarch’s collapse, the CAA has also set up a dedicated website for passengers to find out information and advice, as well as two 24 hour helpline.
The government’s efforts, however, have been criticised by those in the industry, with Derek Moore, chairman of the Association of Independent Tour Operators, saying: “Government harbours the false belief, supported by strong airline lobbying, that airlines won’t go bust – despite the evidence in plain view. Just think about XL, Swissair, Air Berlin, Alitalia… there is a long history of failed airlines, in Europe and the wider world, and airlines are much more likely to fail than tour operators.”
What came as a shock to many was on the cards for a long time. Kept afloat by a £165 million cash injection that Swaffield managed to secure from the airline’s owner, Greybull Capital, last year, the airline had been struggling for years, and had been looking for a buyer for its short-haul business.
Founded by the Mantegazza family in 1968, Monarch’s birth plugged a gap for low-cost charter flights to the package holiday destinations that had started to spring up and change the face of travel.
But as first easyJet, then Ryanair took to the skies, Monarch was slow to see the change coming and while low-cost flights were transforming the short-haul market, Monarch continued to charge double the airfare.
When the ferocity of the competition finally caught up with Monarch, the founders desperately ploughed millions in to keeping the airline running, before ditching the failing brand by selling almost all of the airline to private equity firm, Greybull Capital.
Monarch was then subject to the Civil Aviation Authority stipulating that all bookings would need to be covered by the Air Travel Organiser’s License, (ATOL), which meant seat-only sales had to be charged an extra £2.50 per booking and issued with an ATOL certificate.
The terror attack that took 224 lives on a Russian jet that was coming from Egypt’s premier resort town, Sharm el Sheikh, a lucrative winter route for Monarch, also took its toll on the airline’s profits. After the attack, the UK foreign office banned UK airlines from flying to Sharm el Sheikh until security at the airport was seen to have improved.
Then came a deteriorating security situation in Tunisia and Turkey and Monarch found itself fighting for scraps in a fierce and bloated market of short-haul flights to and from Britain to Europe, mainly Spain and Portugal, as carriers shifted their sights over.
Already struggling, with fragile finances, the sterling’s huge fall after the EU referendum added to what was already becoming a critical situation for Monarch and Swaffield said:
“We take nearly all of our revenue in pounds and a lot of our costs go out in dollars and euros,” explained Mr Swaffield.
“We pay for aircraft leases and fuel in dollars and things like navigation and ground handling in euros. So we get no revenue benefit from a decline in the pound but we get a big cost increase.”
This view is backed up by Tom Smethers, Financial Director of Thomson Airways, who told Financial Director: “The recent weakening of sterling has increased the Euro and particularly dollar input costs, Airlines pay for fuel, ownership costs and maintenance in dollars.”
The CAA was so nervous about Monarch’s financial wellbeing that it spent £25 million setting up a shadow airline close to the date for Monarch’s ATOL renewal, in September 2016, in case it folded, but Monarch was thrown a lifeline when its majority owner, Greybull, bailed it out to the tune of £165 million, last October.
Yet the money was not enough, and as summer came and went without the high sales figures predicted, and its new route form Manchester to Sweden proving unpopular, the airline collapsed.
Swaffield said: “Since 2015 we’ve seen yields collapse by a quarter, resulting in £160m less revenue. This has especially affected Spain and Portugal which is 80 per cent of our business.
“This year the airline is carrying 14 per cent more passengers than last year for £100m less revenue.”
However, Swaffield is reported to have already moved on, setting up a consultancy business of his own.
Smethers commented: “It shows how tough the Aviation industry is and how many external factors Airlines face every day. No carrier can take anything for granted. I think there are a few key issues that have contributed to the current situation: High level of supply of capacity and a highly competitive marketplace. Some carriers are growing very fast and there are a lot of seats on sale. This has reduced revenues on certain key routes and the scale of some carriers has allowed them to drive reductions in unit costs through economies of scales and purchasing power.”
There are now calls for the government and CAA to impose ATOL protection on all flights in a shake-up of the aviation industry, and there are rumblings of a backlash.
Daniel Landen, Managing Director of Protected Trust Services, said “As we stand here today, in the travel industry, if a consumer books a flight only with an airline and the airline collapses that purchase is not covered. It is incredibly unfair that ATOL registered travel companies are in effect subsidizing Monarch airline for 90% of passengers that were not covered.
“This is a huge shake up for the Government and CAA. Now is the time that the travel industry’s requests to Government for the protection to be industry wide should be listened to and implemented.”
Travel and risk expert, Monica Eaton-Cardone of The Chargeback Company, also weighed in, observing: “The huge side-effect of the administration of Monarch Airlines will reach travel operators worldwide, but problems are not just limited to this one case.
“With over 3.8 billion air travellers taking to the skies each year, the potential threat to customer’s travelling without Atol protection is detrimental.”
However, commentators do not see Monarch’s demise as representative of the market as a whole. Smethers, FD of Thomson Airways, commented: “I don’t think it is indicative of an immediate wider problem, however I wouldn’t be surprised if there was further consolidation in the industry over the next few years. There are some very successful powerful carriers out there.”
Simon Talling Smith, Chief Executive of Surf Air, added: “The wider outlook is that if the whole industry continues to be driven by the cheapest end of the market then only those with the lowest cost base will survive. So it becomes a choice between offering the most basic of products or going out of business. The lesson to be learnt is that only those who carve out a niche based on service and innovation will survive. Pick a segment of the market – however small and create a product that is unbeatable for them.”