economics

Monarch Airlines Collapses

Published October 5, 2017 by Carl De Luna
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British charter airline Monarch Airlines ceased operations Monday, October 2nd. This decision caused shock and anger in thousands of passengers and all its future flights and holidays have been canceled. Even its chief executive Andrew Swaffield was devastated about the collapse saying the decision to cease trading was made due to the estimated 2018 losses of “well over £100 million ($132 million USD)”.

The 50-year-old airline was the fruit of the combined efforts of the Mantegazza family and a new airline being raised by two British businessmen, Bill Hodgson and Don Peacock. The birth of Monarch meant that British travelers were given access to Europe’s best tourist spots. With the backing of the Mantegazza family’s travel giant, Globus, the popularity of Monarch skyrocketed among Brits in the 1970’s thanks to its affordable travel packages. Monarch targeted ordinary families who preferred the thrill and sunshine of exotic locations rather staying put and shivering in their houses, it was a hit. Flying was considered a luxury due to the various offers aboard the airline. However, it was not without a hitch. The 70’s also had business dangers of their own such as the oil spike which sent fellow holiday package player Court Line into administration.

In the 80s, Monarch was challenged with the growth of interest in independent travel. Although package holidays remained popular, holidaymakers were opting for the opportunity to choose their flights and hotels according to their preference. Independent travel was in-demand and Monarch answered with its first scheduled flight from Luton to the peaceful oasis of Minorca in the Mediterranean. It meant that Monarch was not just a tour operator but was competing with other airlines head-on.

Mary-Anne Hardie, Bill Hodgson’s daughter, said that Monarch’s problems started when low-cost airlines became a thing and were easier to book directly. In 1995, easyJet, a new low-cost airline started right beside Monarch in Luton. The upstart company became one of the new carriers in the budget airline industry. The budget airline industry grew bigger and Monarch was soon in trouble. Focus on customer care was ditched in favor of offering the lowest prices.

The financial crisis of 2008 did not deter Monarch from operating as they flew to 100 destinations with their fleet of 32 aircraft. For a while, Monarch coped enough to survive, but in time the intense competition took its toll. Its former managing director Tim Jeans noted that Monarch was expanding and had deep pockets when he was running Monarch seven or eight years ago. He also said that competition is “all fair and normally very, very good for consumers”. However, it can be unsustainable and the fall of Monarch was the direct consequence of that. Perhaps the final nail in the coffin was the Arab Spring in 2011. The event made oil prices higher and the usual savior of Monarch, the Mantegazza family did not come to the rescue. They finally gave up after injecting their last £50 million ($66 million) into the company.

Investment company Greybull Capital were then given the opportunity to turn things round. Some of the steps they took included cutting 700 jobs and vacating long haul routes. However, these moves and a hefty investment from Greybull was not enough for Monarch to be competitive against other budget carriers. Additional problems arose as the migrant crisis in Europe, terrorist attacks on popular destinations Egypt, Turkey and Tunisia affected flights. The effects of the EU referendum vote known as Brexit also had an effect as the British pound grew weaker and UK travelers were unable to travel to Monarch’s top tourist destinations.

Before ceasing to exist, Monarch did a great job of coordinating with the UK airline regulator, Civil Aviation Authority, in bringing home stranded passengers affected by their canceled flights. With more than 110,000 passengers without a flight home, the CAA is obligated to bring them home in the UK’s largest post-war repatriation effort. The UK government will be paying for the cost of bringing home Monarch’s passengers. But they have approached third-party tour operators and credit card companies to help them shoulder the cost of bringing the passengers home.

Monarch is also doing great in providing for the futures of their 2,000 employees. Mr. Swaffield said that everything is being done to find jobs for their 2,000 employees, with Monarch talking even with competitor airlines and organizing job fairs and doing their best to connect their staff to competitor airlines. Monarch employees are also expected to receive correspondence packs to help with their claims to the Redundancy Payments Office.

Why did Monarch cease to trade abruptly? Their massive reported loss of £291 million ($385 million) for the year to October 2016 meant that it fell behind last year’s profit of £27 million ($35 million). Administrator KPMG said that Monarch’s collapse was due to higher fuel costs and handling charges to a weaker British pound and lower prices in the short haul market.

Perhaps Monarch was a victim of circumstance and if it was a different period, they would have survived. As per other airlines, they faced the risk of fluctuating oil prices due to the weakening of the British pound. As with all airlines, they must face the costs of running the airline in dollars, but the weaker pound meant that they must pay more. Monarch also failed to offer something different in the low-cost industry. They lost their edge in offering flights to tourist spots and they just became one of the crowd, offering nothing special to consumers. Monarch’s removal of its long-haul routes hurt it in the long-run. They tried to adopt the strategies of established budget carrier giants such as Ryanair and easyJet but they did not hold their own in terms of size and capacity to match them. It was ill-advised of their management to adopt a low-cost model and not consider the requirements to do so. They were also partly affected by increased efforts on two of Monarch’s key markets- Portugal and Spain. Terror attacks in Turkey and Egypt also did not help things. They had to reduce prices to its key markets affecting Monarch’s revenues.

News came out that chief executive Andrew Swaffield pocketed £583,000 ($772,941 USD) and was registered as a director of a new consulting business. It was also alleged that he pushed for a flight sale just three days before entering administration. These issues must be answered by Swaffield as he is the chief executive and he will be responsible for his actions. But his actions in sanctioning a sale prior to administration is unethical and unfair to the passengers who were duped into believing that they would have no problems with their flights. Getting a hefty six-digit salary and becoming a director of a new business days before the carrier faced administration smacks of selfishness and insensitivity. He must explain his actions at the most inopportune time.

We can now see that Monarch had its shares of highs and lows. It became a huge part of the British culture and their adventures to exotic holiday locations. But it cannot be ashamed of 50 years in service. It made mistakes and these should be considered as learning blocks for those in the airline industry. It can help them improve in the future and avoid similar mistakes.

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