What went wrong and grounded this carrier?

What Has Happened?

In a widely anticipated announcement earlier today, Monarch Airlines was placed into administration and has ceased to trade with immediate effect.

The Civil Aviation Authority (“CAA”) did not renew Monarch’s ATOL licence which expired on Sunday at midnight leaving the carrier with little choice but to cease trading as it could no longer sell holidays.

Approximately 110,000 customers are abroad and will require to be repatriated which is a process being coordinated by the CAA. It is likely that a lot of consideration will have gone into the timing of today’s events with the number of passengers abroad expected to be at relatively low levels given the time of year.

What Went Wrong?

Monarch was Britain’s longest surviving airline but has in reality been struggling for a number of years.

In 2014 the previous owners, after injecting substantial amounts of funding, sold the business to a private equity house, Greybull Capital.

Monarch was significantly exposed to Egypt as a region and the decision by the UK Foreign Office to ban UK airlines from flying into certain locations in Egypt due to a terrorist attack in 2015 will have impacted the business hard.

Another popular location, Turkey, went through a similar issue in 2016 and Monarch focused it’s efforts on Spain and Portugal instead. These are popular locations with extremely competitive pricing and Monarch will have found it difficult to compete with the sheer scale of the competition it was up against, for example the turnover of Ryanair is c. 10 times that of Monarch.

On top of this, the Brexit vote will have had significant impact with the immediate weakening of sterling since the vote as the majority of an airlines costs will be a mixture of US Dollars and Euros.

Monarch would have found itself squeezed with reducing turnover and increasing costs. This is well evidenced in a recent admission by the Chief Executive of Monarch who stated that last year it carried 14% more passengers for £100m less turnover.

What happens next?

The Administrators will firstly seek to find a buyer for the whole business which is unlikely given the scale of the operation.

The more feasible scenario is that the business will be broken up for sale. The prize assets will be the popular runway slots as well as the key staff where there is certainly demand in some areas of the market at present.

This is a sad tale but not a surprise.