What did Monarch do wrong?

The low-cost airline finally runs out of gas.

by Adam Gale
Last Updated: 02 Oct 2017

When a business goes under, it’s human nature to look for someone to blame, for some failure in management, leadership, or vision. Human error is indeed often the cause, but not always. Sometimes, the challenge is just too big for us.

Monarch Airlines is a case in point. After stuttering along for years, it’s finally fallen into administration. All flights were immediately cancelled after Monarch failed to convince the Civil Aviation Authority that it had the financial health to renew its ATOL licence. Yet you’ll struggle to find a significant failure in management.

Let’s look for a minute at what actually went wrong. Monarch was heavily exposed to Middle East tourism, which took a nose dive due to terror attacks in Tunisia and Egypt, the failed 2016 coup in Turkey and the ongoing Syrian civil war and migrant crisis. As a result, all the low-cost airlines doubled down on their other major markets, particularly Spain, which had the effect of reducing passenger load and squeezing margins. At the same time, the drop in sterling since 2016 weighed heavily on fuel and maintenance costs.

That combination leaves very little room for manoeuvre. Though the problem has been apparent for the last 18 months to two years, it’s very hard to see what Monarch’s senior leadership could have done differently, other than anticipating what happened in both the Middle East and the Brexit referendum. You can’t really blame them for not being clairvoyants.

Nor can you really say they reacted too slowly. For all the talk about 21st century agility, airlines aren’t software businesses. They just can’t turn that quickly.

Monarch had struck a deal in 2016, for instance, to acquire a new fleet of Boeing-737s in a sell-and-leaseback arrangement, to replace its fleet of ageing Airbuses. This would have dramatically reduced both fuel and maintenance costs, something that could have helped Monarch weather the storm, but the first of the planes wasn't due to be delivered until 2018.

With competition so intense - Air Berlin and Alitalia have both filed for insolvency - it’s not really surprising either that owners Greybull Capital didn’t save Monarch for a third time in four years, having already forked out £125m when they acquired the airline in 2014, and £165m to rescue the firm this time last year.

If you’re really looking for blame, you’d probably have to go back to the 1990s and 2000s, when Monarch was a successful, profitable airline. It failed to adapt quickly enough to the low-cost, no-frills model popularised by easyJet and Ryanair, which effectively made its charter model obsolescent. Monarch only began transitioning to a low cost airline in 2009, and only completed the process after Greybull came in, by which time it was a tenth the size of Ryanair.

But hindsight’s a beautiful thing. Corporate history is littered with disrupted or displaced companies that didn’t see the writing on the wall, largely because it’s hard to know whether something is actually the future, or just a fad.

Ultimately, even if you do the right thing, circumstances can conspire against you. Unless you’ve been profitable enough – and cautious enough – to build a particularly resilient balance sheet, the end can always come quickly.   

Image credit: MYK661/Wikipedia


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