Monarch Airlines runs out of runway

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SHORTLY before dawn on October 2nd, startled passengers booked to fly on Monarch Airlines began to get text messages informing them that their flights had been cancelled. It was the first news that Britain’s fifth-biggest airline had ceased trading and was in administration.

The government had been warned that Monarch was in trouble only a month before, so a prepared rescue plan quickly took off. Over 30 aircraft were hired to bring back about 110,000 passengers from abroad in what was billed as the country’s biggest peacetime repatriation. A further 860,000 people lost forward bookings, and with them weddings, birthday jollies and more.

It is the third business failure for Monarch’s secretive private-equity owners, Greybull Capital. Greybull bought Monarch in 2014, when the airline was already struggling, from the Swiss-Italian Mantegazza family who had set it up in 1968. Greybull pumped money into Monarch, but the airline had still been expected to lose over £100m next year, said Monarch’s boss, Andrew Swaffield.

Monarch had a good business flying to Egypt and Tunisia. But services were stopped to both destinations in 2015 after the bombing of a Russian airliner over the Sinai peninsula and the mass shooting of mostly British holidaymakers on a beach at Sousse. The number of passengers flying from Britain to north Africa fell from 177,000 in August 2016 to 95,000 in August 2017. The fall in the pound since June 2016 compounded Monarch’s woes, as many of its costs, such as fuel, were in dollars.

More important, the airline failed to adapt to the changing aviation market. It was created to service the boom in package holidays. Its first charter flight took off from Luton airport, where the company was headquartered, for Spain. That was the story for the next three decades: flying working-class Britons to Mediterranean resorts for all-in holidays, in some comfort. Passengers remember the free on-board drinks and classy grub.

That business model, like many others, was shattered by the internet. Punters now book their own holidays. The rise of low-cost airlines such as easyJet, founded in 1995, gave passengers cheap alternatives to charter flights. Numbers on charter flights operated by British airlines fell by two-thirds from 2001 to 2016, even as the overall number of passengers increased.

As profits declined, Monarch got out of charters and concentrated on short-haul, budget flights. But, says Robin Byde of Cantor Fitzgerald, a financial services company, in Europe this is the most fiercely competitive market of all, dominated by four big firms: Ryanair, easyJet, IAG (which includes British Airways, Aer Lingus and Iberia) and the Lufthansa group. Despite cutting costs, Monarch could not achieve the economies of scale to compete with its rivals. Air Berlin and Alitalia went bust earlier this year for similar reasons.

Monarch made a desperate bid to move from short-haul into long-haul, ordering 15 new planes (on top of a previous 30) in June. But it was too late. The company could not find a buyer for its short-haul operation. The share prices of Monarch’s rivals leapt on its demise; they will now feast on the carcass, grabbing pilots and airport slots. Unsentimental business, aviation.