Fergal McGivney
Fergal McGivney, Technology & Travel Analyst at Mintel, analyses and reports on the Travel sector using an extensive knowledge of a diverse range of industries.

On 2 October 2017, low-cost charter carrier Monarch entered into administration, grounding all scheduled flights. This means that some 300,000 bookings are cancelled, and 110,000 Monarch customers are currently stranded overseas. It is the biggest UK airline to fold, leading the government to ask the Civil Aviation Authority (CAA) for support.

Why did Monarch collapse?

According to CAA data, Monarch’s passenger numbers fell by 5.1% to 5.4 million in 2016, compared to a 7.6% rise for the overall overseas passenger numbers in 2016. This marks an 8.4% drop in Monarch’s overseas passenger numbers since 2011.

Monarch had been experiencing difficulties for some time. In 2014, a takeover by Greybull Capital forced the airline to implement pay cuts and redundancies. The airline had hoped to be debt free within three years. However, the Brexit vote and the resultant drop in value of the Pound were too much to bear. The drop in sterling cost Monarch an extra £50 million a year for fuel and aircraft, both of which are purchased in US Dollars. Monarch also had new fuel-efficient Boeing 373 Max planes costing over $3 billion in the pipeline.

In addition, Mintel’s UK research on airlines highlights Monarch’s exposure to North Africa as a potential problem. In response to weakening consumer demand for flights to these destinations, Monarch had shifted capacity to the more traditional holiday destinations, like Spain, Portugal, and Italy. However, competition is fierce on these routes. Monarch’s fleet size of 45 aircrafts is much smaller than Ryanair’s fleet of approximately 400 and easyJet’s fleet of around 250. Because Monarch had a small number of aircrafts in operation, it was hard to achieve economies of scale by selling high volume low-cost tickets like Ryanair and easyJet. Monarch simply did not have the capacity to sell tickets at competitive prices and turn a profit.

What does it mean for the consumer?

Most of those affected by the company’s administration are likely be older consumers. Over-55s are the most likely to have ever used Monarch, perhaps a reflection of its longer existence on the market. In general, there is a noticeable generational divide when it comes to usage of charter carriers; while just 17% of under-45s used a chartered service, this rises to 29% amongst over-45s. Older consumers have a tendency to opt for all-inclusive package deals and family-oriented holidays, which are types of products that chartered tour operators like Monarch specialise in. Although no other UK airline is on the brink of collapse, Monarch’s situation could potentially put more cautious consumers off from booking overseas trips in the near term. This could end up boosting staycations in the UK.

What does it mean for carriers?

Monarch’s collapse means there there is slightly less competition in the market. This could potentially inflate prices on certain routes in the short/medium/long-haul markets. However, this does present an opening for other low-cost long-haul carriers like Norwegian to increase capacity. The same also goes for budget carriers on short-haul routes. Shares in easyJet and Ryanair have jumped since the administration announcement. Investors anticipate that budget rivals can capitalise on Monarch’s demise as consumers rebook fights, as well as longer term expansion to fill Monarch’s vacant slots at Gatwick and Luton.

Fergal McGivney is a Technology & Travel Analyst at Mintel, having previously worked for a market research company focusing on a diverse range of industries including travel, technology and media.