Monarch ceases trading – why did the airline go bust?

Routesonline looks at what went wrong at collapsed British airline - from terrorist attacks to fierce competition from low-cost carriers.

British airline and holiday group Monarch has ceased trading following the appointment of administrators. The collapse has left about 110,000 customers stranded overseas, with the UK’s Civil Aviation Authority currently coordinating the repatriation. So what went wrong?

Monarch was rescued three years ago by investment firm Greybull Capital which injected £125m into the group for a 90 percent stake, with the remainder passing to the Pension Protection Fund.

Although its management team attempted to turnaround its fortunes, the airline remained loss-making and a further investment of £165m was required in October 2016. The fresh financing allowed the airline to renew its membership of the Air Travel Organisers' Licensing (ATOL) scheme.

However, Monarch chief executive Andrew Swaffield blamed “outside influences” for badly affecting the airline in recent years, with yields collapsing by a quarter since 2015. This especially affected Spain and Portugal which accounted for 80 percent of its business. Swaffield said this year the airline carried 14 percent more passengers than last year for £100m less revenue.

Accounts for Monarch Holdings Ltd, published on the UK’s Companies House in August 2017, show revenues dropped to £674.3m in the year to 31 October 2016, a slump of 18.6 percent, while the business posted a pre-tax loss of £297.9m.

Terrorism effects

“The root cause is the closure, due to terrorism, of Sharm-El- Sheikh and Tunisia and the decimation of Turkey,” Swaffield said in a letter to staff.

In 2015, Metrojet Flight 9268 was brought down by a bomb shortly after it left Egypt’s Sharm el-Sheikh International Airport, killing all 224 people aboard. In the same year, a mass shooting occurred at the tourist resort at Port El Kantaoui, about 10 km north of the city of Sousse in Tunisia.

Monarch cancelled all flights to Sharm El Sheikh in November 2016 after the UK government banned airlines from flying there amid security concerns. According to statistics from OAG, Monarch’s capacity to Egypt dropped from more than 400,000 available seats in 2015 to almost zero, while capacity to Tunisia fell from almost 40,000 to nothing.

A heightened risk of terrorist attacks in Turkey also resulted in Monarch’s capacity plunging from a high of 709,028 in 2014 to 235,200 last year.

Mediterranean competition

After redeploying much of its Egypt and Turkey capacity to Spain and Portugal, Monarch has been a victim of a price war in the Mediterranean, with intense completion from low-cost carriers like easyJet and Ryanair leaving it squeezed in the middle.

Analysis by Routesonline shows that during the summer 2017 season, the airline had competition on 21 of its 30 routes from Birmingham; all ten routes from Leeds Bradford; all 23 routes from London Gatwick; 13 of its 15 from London Luton; and 25 of its 26 services from Manchester.

Monarch’s top country markets:
Spain 4,353,492 two-way seats (57 percent of Monarch seats)
Portugal 1,230,184 two-way seats (16 percent)
Italy 479,980 two-ways seats (6 percent)
Gibraltar 286,056 two-way seats (4 percent)
Turkey 273,200 two-way seats (3 percent)

 “Despite these challenges we managed to cut £40m out of our cost base by reducing overheads and being more efficient and wasting less,” said Swaffield. “However the yield reductions have turned our airline from one that made £70m profit in 2015 to one that made a £60m loss in 2017 and was scheduled to lose over £100m in 2018.”

A closer look at the competition Monarch faced on each route in summer 2017 (source OAG):

Birmingham Airport

Destination  Competitor(s) Monarch % capacity share (summer 2017)
Aktion National   100
Alicante Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways, Vueling 33.6
Barcelona El Prat Norwegian, Ryanair, Vueling 27.1
Dalaman Thomas Cook Airlines, Thomson Airways 34.1
Dubrovnik Thomson Airways 75
Faro Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 38.5
Fuerteventura Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 20.1
Funchal Jet2, Thomson Airways 62.3
Gibraltar    100
Gran Canaria Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 31
Heraklion  Jet2, Thomas Cook Airlines, Thomson Airways 25.3
Ibiza British Airways, Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways  13.9
Lanzarote Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 31.2
Larnaca  Blue Air, Cobaltair, EasyJet, Thomas Cook Airlines, Thomson Airways  39.3
Lisbon   100
Madrid Iberia, Ryanair 24.6
Malaga Jet2, Thomson Airways, British Airways, Ryanair, Vueling, Norwegian 34.2
Menorca Jet2, Thomas Cook Airlines, Thomson Airways 30.6
Naples Thomas Cook Airlines, Thomson Airways 29.3
Nice   100
Palma de Mallorca British Airways, Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 24.2
Paphos Jet2, Thomas Cook Airlines, Thomson Airways 27.4
Porto Ryanair 57.5
Rhodes Jet2, Thomas Cook Airlines, Thomson Airways 8
Rome Fiumicino   100
Split   100
Stockholm Arlanda   100
Tenerife Sur Jet2, Norwegian, Ryanair, Thomas Cook Airlines, Thomson Airways, Vueling 36
Valencia   100
Venice   100

Leeds Bradford

Destination  Competitors Monarch % capacity share (summer 2017)
Alicante Jet2, Ryanair 12.9
Barcelona El Prat Jet2 46.5
Dalaman Jet2 53.9
Faro Jet2, Ryanair, Thomson Airways 22.7
Larnaca Jet2 35.6
Malaga Jet2, Ryanair 11.9
Menorca Jet2, Thomson Airways 29.6
Naples Jet2 72.7
Palma de Mallorca Jet2, Ryanair, Thomson Airways 11.5
Tenerife Sur Jet2, Ryanair, Thomson Airways 17

London Gatwick

Destination  Competitors Monarch % capacity share (summer 2017)
Aktion National EasyJet, GerManchesteria, Thomas Cook Airlines, Thomson Airways 31.2
Alicante British Airways, EasyJet, Ryanair, Norwegian, Thomson Airways 24.6
Almeria EasyJet, Thomas Cook Airlines, Thomson Airways 28.4
Antalya EasyJet, Freebird Airlines, Thomas Cook Airlines, Thomson Airways 7.7
Barcelona El Prat British Airways, EasyJet, Norwegian, Vueling 5.2
Dalaman British Airways, EasyJet, Pegasus Airlines, Thomas Cook Airlines, Thomson Airways 20.5
Dubrovnik British Airways, EasyJet, Norwegian, Thomson Airways 19.9
Faro British Airways, EasyJet, Norwegian, Thomson Airways 24.3
Funchal British Airways, EasyJet, Norwegian, Thomson Airways 22.4
Gibraltar  EasyJet 25.7
Gran Canaria EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 9.4
Ibiza British Airways, EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 16.6
Lanzarote British Airways, EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways  26.9
Larnaca British Airways, EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 8.1
Lisbon EasyJet, TAP Portugal, Thomas Cook Airlines  23.3
Malaga British Airways, EasyJet, Norwegian, Thomson Airways 18.2
Menorca EasyJet, Thomas Cook Airlines, Thomson Airways 19.8
Palma de Mallorca EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 20.9
Paphos British Airways, EasyJet, Thomas Cook Airlines, Thomson Airways 6.1
Rhodes British Airways, EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 5.5
Tenerife Sur British Airways, EasyJet, Norwegian, Thomas Cook Airlines, Thomson Airways 24.6
Venice British Airways, EasyJet, Thomson Airways 8.2
Zagreb Croatia Airlines 97.9

London Luton

Destination  Competitors Monarch % capacity share (summer 2017)
Alicante EasyJet 33.5
Dalaman   100
Faro EasyJet, Ryanair, Thomson Airways 23.5
Gibraltar    100
Lanzarote EasyJet, Ryanair, Thomson Airways 18.1
Larnaca Blue Air, Thomson Airways 35.4
Malaga EasyJet, Thomson Airways 25.1
Menorca EasyJet, Thomson Airways 33.2
Naples EasyJet, Thomson Airways 21.5
Palma de Mallorca EasyJet, Thomson Airways 25.5
Porto EasyJet 40.7
Rome Fiumicino EasyJet 37.4
Stockholm Arlanda EasyJet 30.5
Tel Aviv Arkia Israeli Airlines, EasyJet, El Al, Israir, Wizz Air 10.7
Tenerife Sur EasyJet, Ryanair, Thomson Airways 35.6

Manchester

Destination  Competitors Monarch % capacity share (summer 2017)
Aktion National EasyJet, Thomas Cook Airlines, Thomson Airways 36.1
Alicante British Airways, EasyJet, Jet2, Norwegian, Ryanair, Thomas Cook Airlines, Thomson Airways, Vueling 21.4
Almeria Jet2, Thomas Cook Airlines, Thomson Airways 29.9
Barcelona El Prat Jet2, Norwegian, Ryanair, Vueling 21.1
Dalaman EasyJet, Freebird Airlines, Jet2, Pegasus Airlines, Thomas Cook Airlines, Thomson Airways 15.1
Dubrovnik EasyJet, Jet2, Thomson Airways 30.9
Faro Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 26.3
Fuerteventura Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 16.4
Funchal EasyJet, Jet2, Thomson Airways 23.5
Gibraltar  EasyJet 66.3
Gran Canaria Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 11.5
Ibiza British Airways, EasyJet, Ryanair, Thomas Cook Airlines, Thomson Airways 7.3
Lanzarote Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 24.5
Lisbon Ryanair, TAP Portugal, Thomas Cook Airlines 25.5
Malaga British Airways, EasyJet, Jet2, Norwegian, Ryanair, Thomas Cook Airlines, Thomson Airways 26.1
Menorca Jet2, Thomas Cook Airlines, Thomson Airways 22.2
Naples Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways 20.5
Palma de Mallorca British Airways, EasyJet, Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways   16
Porto EasyJet 48.1
Rhodes Jet2,  Thomas Cook Airlines, Thomson Airways 13.4
Stockholm Arlanda Norwegian Air Shuttle, SAS Scandinavian Airlines, Thomas Cook Airlines 19.2
Tel Aviv EasyJet 59.1
Tenerife Sur EasyJet, Jet2, Ryanair, Thomas Cook Airlines, Thomson Airways, Vueling 18.9
Venice EasyJet, Jet2, Thomson Airways 32.4
Verona Thomson Airways 56.4
Zagreb   100

Long-haul attempt

Swaffield said the airline planned to switch its focus from short-haul to long-haul in spring 2018 to reduce losses. A process to find a buyer for assets of its short-haul operations was therefore launched, but “no deliverable offer” materialised.

“As a consequence of this we lost any prospect of avoiding an insolvent liquidation and have been left with no option but to file for insolvency and cease operations,” he added.

“Unlike many other countries, the UK does not offer a viable insolvency track for airlines to keep operating during administration and so we were forced to cease operations.”

What next?

The administrators from KPMG have said they are "hopeful" that some of Monarch's best slots will be sold. Nigel Mayes, senior vice-president for consulting and product development at route development consultancy ASM, believes a string of competitors will be in the mix. 

“As the administrators start the process of carving up Monarch’s assets, rival airlines will be most interested in landing some of the carrier’s coveted slots, in particular those at London Gatwick and Manchester, he says. 

Monarch had a 4.5 percent share of flight slots at Gatwick and 6.7 percent at Manchester and these could prove to be its most valuable assets. The likes of easyJet, BA, Wizz Air and Norwegian will no doubt all be circling.”

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