Vultures already circle as wounded Monarch Airlines falls into administration

It has become a perennial problem in the competitive European airline sector over recent years, but despite a significant restructuring UK carrier Monarch Airlines has this year failed to demonstrate to the UK regulator that it financially fit to continue operations. As it negotiated the renewal of its annual Atol licence this past weekend it became evidently clear the airline and its tour operator business could no longer operate in their current form and subsequently entered administration in the early hours of 02-Oct-2017.

With the UK Civil Aviation Authority (CAA) revoking the airline’s Air Operator Certificate (AOC) following the arrival of its last flights from Larnaca (to London Gatwick) and Tel Aviv (to Manchester) around 04:00am an emergency plan was actioned to rescue the estimated 110,000 Monarch customers now trapped abroad. A further 300,000 advanced bookings have also been lost as a result of the airline’s collapse.

Heritage means nothing in a world of inevitable consolidation and while Monarch had become the oldest leisure brand still operational in the European holiday market its failure has come as no surprise. Under the request of the UK Government the UK CAA has been forming a ghost fleet of aircraft to prepare for the worst case scenario. A similar exercise last year had cost a reported GBP25 million but proved unnecessary as an eleventh hour cash injection from owner Greybull Capital kept the airline flying – for a year at least.

CHART – Monarch Airlines scaled back its activities in 2015 but has been growing capacity the past two yearsSource: CAPA – Centre for Aviation and OAG

In what could be classed as one of the most expensive games of chess, the UK CAA has been positioning its rescue fleet at points across Europe in preparation for Monarch’s potential demise. Over the past five days at least three Air Transat widebodies were ferried from the airline’s Montreal base to Bordeaux in the south of France ready for immediate deployment. Two Qatar Airways Airbus A320s also flew from Doha to London Stansted and ultimately flew the first ‘rescued’ Monarch passengers back to the UK as eight further aircraft made their way in convey from the Middle East to Birmingham and London Gatwick as the impending failure of the UK carrier became clearer in the late hours of 01-Oct-2017.

The UK CAA says that over the forthcoming fortnight it will utilise a fleet of 30 aircraft to bring Monarch customers back from the UK as its attempts to replicate the collapsed airline’s schedule as close as possible. Alongside Air Transat and Qatar Airways aircraft from Titan Airways and Wamos Air are already supporting the repatriation effort. The process is the UK’s “biggest ever peacetime repatriation,”, according to Transport Secretary, Chris Grayling.

Administrator KPMG says Monarch’s collapse is a result of “depressed prices” in the short haul travel market, alongside increased fuel costs and handling charges as a result of a weak pound. The terror attacks in Turkey and Egypt have deprived the airline of a large chunk of its annual revenues, and forced it to compete on heavily congested traditional routes to Spain and Greece.

TABLE – Monarch Airlines fleet is dominated by Airbus A320 Family equipment. It recently added a first leased Boeing 737-800 and had 45 737MAX-8s on orderSource: CAPA – Centre for Aviation Fleet Database

Monarch reported a loss of GBP291 million for the year to October 2016, compared with a profit of GBP 27million for the previous 12 months, after revenues slumped. Mr Swaffield chief executive officer of the airline said recently that the carrier was carrying 14% more passengers than last year for GBP100 million less revenue.

KPMG confirms the administration covers Monarch Airlines Ltd, Monarch Holidays Ltd, First Aviation Ltd, Avro Ltd and Somewhere2stay Ltd but Monarch Aircraft Engineering Ltd continues to trade and keeps the Monarch brand going. Mr Swaffield said in a communication to staff that despite “best efforts” a long term solution could not be found  for these parts of the business. “This is the update I hoped I would never have to write,” he said.

In the days ahead of Monarch’s collapse easyJet, Norwegian Air and British Airways’ parent International Airlines Group (IAG) were all reported to be interested in acquiring parts of the Monarch business, but will now likely seek to fight of the scraps to more cheaply support their own development. Monarch’s aircraft slots, particularly at London Gatwick, will have some value, as will some of its trained staff.

There are even suggestions that a ‘new’ Monarch could raise like a phoenix from the failed business and adopt the low cost long haul model and fly new generation single aisle airliners in the trans-Atlantic market between Europe and North America. There were talks of flights from Birmingham and Manchester to New York among other routes.

It is not clear if this was ultimately a smokescreen to hide the severity of the airline’s problems or a last ditch rescue plan, but Mr Swaffield has acknowledged attempts to “pivot our airline from short haul to long haul to reduce losses” was reliant on a “deliverable offer” from a buyer for its short-haul operations or assets.

CHART – London Gatwick, Manchester and more recently Birmingham had been the main focus of Monarch Airlines’ activities out of the UKSource: The Blue Swan Daily and OAG 

This year, Monarch was providing more than 3.7 million seats from the UK, up +5.5% on last year.  Its largest presence was at London Gatwick (29.3% share) and Manchester (27.4% share) where it has been growing its presence over the last decade. At its demise it also offered flights from Birmingham, Leeds Bradford and London Luton but had also flown from East Midlands between 2012 and 2015.

Monarch’s network in 2017 covered 15 different countries, but the main focus has been on Spain which accounted for 57.4% of its total outbound capacity from the UK – its largest offering into the country over recent years highlighting the additional pressure it has faced in this competitive market. Its five largest individual markets by scheduled capacity according to its full year timetables were Alicante, Malaga, Tenerife, Faro (Portugal) and Palma.

CHART – Spain is the main focus of Monarch’s network activities, one of the most competitive markets from the UKSource: The Blue Swan Daily and OAG