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Why Has Monarch Gone Bust?

What it takes to bring an airline to its knees...

02/10/2017 10:37 | Updated 02 October 2017

The collapse of Monarch has been deemed the biggest ever failure of a British airline, stranding tens of thousands of travellers overseas and prompting the country’s biggest-ever peacetime repatriation effort. 

The 50-year-old firm has cancelled 300,000 future bookings and apologised to customers and staff as it became the UK’s largest carrier to go into administration. But why did Monarch go under? 

Terror 

The chief executive of Monarch has blamed terror for the airline’s collapse. In a letter to staff, Andrew Swaffield said the airline had this year carried 14% more passengers than the previous year, for £100m less revenue.

PA Wire/PA Images
Empty check-in desks at Gatwick Airport after Monarch Airlines collapsed into administration

“We had a turnaround year in 2015. But since them, outside influences have badly affected us. 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% of our business.... The root cause is the closure, due to terrorism, of Sharm-El-Sheikh and Tunisia and the decimation of Turkey,” he wrote.

In 2015 a Russian Metrojet airliner was bombed as it left the Egyptian sea resort, killing all 224 passengers and crew and an attack in Sousse, Tunisia in which 30 Britons died, both heavily affected the airline.

As did an attempted coup in Turkey in 2016, which saw the Foreign Office warn Britons about visiting the country amid the deaths of some 265 people killed in clashes between soldiers and supporters of the president.

Egypt’s Sharm El Sheikh was built around tourism, but the resort has been left a veritable ghost town as major UK carriers suspended flights and foreign offices around the world warned their citizens of the “high threat from terrorism.”

In November 2016 a blog on the Monarch Airlines website announced the firm was cancelling all flights and holiday bookings to Sharm El Sheikh for the foreseeable future. It came after the Government took the unprecedented step of banning UK airlines from flying there, except for “rescue flights,” after deeming the airport to be unsafe. Some 20,000 Brits were airlifted back to the UK. Prior to the closure of the airport to British flights, roughly 700,000 Britons visited the resort every year, making it an important holiday destination for the UK travel industry. 

Egypt has since spent over £20m improving airport security standards. At the time, Swaffield said: “Much hard work has been done by the UK and Egyptian Governments, along with the travel industry, to improve safety measures at Sharm El Sheikh and it is very disappointing that it remains closed. If and when the airport does reopen then we will assess whether we start flights and holidays again.” The FCO continues to advise against all but essential travel to the resort. 

Brexit

A decline in the value of the pound amid Brexit uncertainty also compounded the airline’s problems. Much of its income came in pounds sterling, while many of its costs – such as fuel -  were in US dollars.

Blair Nimmo, an administrator from accounting firm KPMG, told Today on Radio 4: “It was loss making. I think a combination of depressed revenues as a consequence of poor yields because of over-capacity in the short haul market, where for example in the last year they’ve flown 14 per cent more customers but the revenue for that has been £100million less. In tandem with that the cost base has increased fairly significantly because of the adverse movement of the dollar against the pound where a number of their costs, namely fuel handling charges and lease payments are still paid in US dollars.”

In comments reported by the Guardian, Unite accused the government of “allowing” the firm, which was formed and opened its first hangar at Luton airport in 1968, to fail. 

National officer Oliver Richardson said: “Continuing uncertainty surrounding Brexit and the ability of UK airlines to fly freely in Europe after the UK has left the EU undoubtedly hindered Monarch getting the investment it needed to restructure and survive. Now is not the time for Government ministers to wash their hands of a problem they have contributed to. Ministers need to act fast by intervening in a similar way as their German counterparts did with Air Berlin and help secure a future for Monarch.” 

Competition

Other budget airlines have also been blamed for edging Monarch out of what has become an oversaturated market. 

Today business presenter Dominic O’Connell said: “Monarch is a little bit of a relic of the way the travel industry used to be organised. Tour operators who needed airlines to carry their people down to the Mediterranean. EasyJet and Ryanair have eaten those airlines’ lunch over the years, all that growth that’s come in travel to the Mediterranean has been taken by EasyJet and Ryanair and Monarch – and there used to be lots of airlines like Monarch – have gradually gone out of business over the years.”

“Monarch has really been a victim of a price war in the Mediterranean,” Transport Secretary Chris Grayling told Sky News.

Grayling added that he expected many of Monarch’s more than 2,000 staff to get jobs elsewhere.

“Monarch’s problem was it was it was neither one thing nor the other. It was not really... a package holiday airline, nor was it really a low cost airline. I think it got rather squeezed in the middle,” he added.

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