Why Monarch failed

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Monarch’s collapse and the consequences will be felt for a long time to come. For months aviation leaders have been warning that greater consolidation is inevitable in the European market. If you don’t have a backer with deep pockets, you’re doomed.

Monarch’s survival through the financial crisis of 2008-9 was the beginning of its problems. It’s then owners managed, through guile, persistence and a lot of cash, to get it over the hump of the disaster and into viable territory once again. However it can fairly be said that the effort to keep it going eventually exhausted the will and resources of its owners, the Swiss-Italian billionaire Sergio Mantegazza and his family.

The Mantegazza’s had put £45m in in 2009, £75m in 2011 and were planning on £60m again in July 2014. Monarch was becoming more than an expensive business and looked unlikely to ever come back into profit. An equity partner was found. Greybull took over.

Geybull are a secretive private investment firm, whose aim is to turn round a business, sell it and make profit. They’ve had mixed success, and never with an airline. Despite apparent reservations, by the end of September 2016, Greybull were convinced to put another £165m into the business – Monarch scraped by and retained its ATOL licence at the very last minute.

Andrew Swaffield, who ran day to day operations (and been appointed by the Mantegazza’s) was allowed, by all accounts, pretty much unrestricted authority to do what was needed. Employees and pensioners of the airline all took a hit to keep it going.

Swaffield’s big decision was to drop Monarch’s long haul flights and its charter business and concentrate on becoming a low-cost carrier, operating scheduled routes. Most of those routes were to its former charter destinations. World affairs were to make this one bad descision, yet not one that could easiliy have been, at the very least partly predicted as a possibility. Monarch chose to expose itself to a higher risk environment when it didn’t need to. Bigger airlines like Thomson/TUI and Thomas Cook/Condor suffered, for Monarch the loss of Egypt and Tunisia was a devastating blow, add that to the political strife in Turkey following the failed coup attempt in 2016 and things were looking very bleak. Monarch’s three main destinations were crippled.

That apart, there was a growing opportunity that Monarch totally failed to see, especially when it had the equipment on hand to make it viable. The airline had an old A310, and a pair of A332’s. Little could be of more use to establish a long haul low-cost model than these three. Instead, they totally missed the growing trends, and left the entire scheduled long haul low cost field to Norwegian. Since then WOW, Aer Lingus, Eurowings, and now Level have all emerged to move into that very spot, one of the few showing relatively unlimited growth.

Monarch was faced with even more issues at its biggest airport, BHX. In the past year jet2.com arrived, enticed by a ridiculously low-cost service and landing fees deal offered by Birmingham Airport, far lower than they were charging long-term customer Monarch.

jet2 was effectively flying the same routes as Monarch to Spain over the summer of 2017, almost on the same schedule, in some cases just five minutes apart.

The loss of the Egyptian and Tunisian routes from terrorism incidents, Turkey from internal strife, had been actually covered by a well-managed shift to Spain and Portugal. Despite growing passenger numbers the airline forecast a loss of £100m this year and more than £218m next year. They just weren’t big enough to cope with that type of burden. They’d cut costs by £40m, but Brexit hammered them hard, the drop in the value of the UK pound was massive in margin terms, and jet fuel is bought in dollars.

FACT: Monarch lost 400,000 seats in Egypt, 40,000 in Tunisia.

Despite a 14% increase in passenger numbers this year, the loss per ticketed seat was phenomenal. The competition from jet2, RyanAir, easyJet, BA, TAP, Thomas Cook, Thomson/Tui and Vueling was grueling.

FACT: Monarch faced competitors on 21 of its 30 routes from BHX, 10 out of 10 routes from Leeds-Bradford, 23 out of 23 from Gatwick, 13 out of 15 at Luton and 25 of its 26 routes from Manchester.

Some of these routes had as many as 6 airlines flying them at BHX, 7 at Manchester to Palma de Mallorca and no less than 9 different airlines to Barcelona El Prat, also from Manchester. Only a tiny handful had 1 one airline, the average was 4.

When Monarch suddenly realised that the future had already been thrown away – short haul was doomed – the winter of 2017/18 was to be spent getting long haul aircraft into the system, financed by the sale of the airlines short haul business routes and the return to lessor of its expensive fleet.

Sadly nobody wanted what Monarch had, why would they? Most of them were already competing with Monarch on the very routes it was trying to sell them.

The nail in Monarch’s coffin was the decision to try to compete as an LCC in a crowded market. Monarch in effect decided that it was going to play hard ball with airlines far bigger and better financed than they were and it lost. It ‘s managers squandered a golden opportunity to go long haul low-cost, just as that market was starting to come into its own three years ago. They could have been leaders.

Short sighted managers, lack of money and a big dose of geopolitics crucified Monarch. The terrorism aspect could have easily been hedged against. Anyone with an ounce of common sense could see those routes represented high risk. Brexit – the financial consequences were long discussed, but like the rest of the UK, swamped by fake news, fake facts and disinformation, nobody really understood what it all meant, and as of yet they still don’t.

The competition though – they were there for all to see, Andrew Swaffield in the end must take the responsibility for not having the foresight needed to run an airline. The buck stops with him.

 

 

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