Monarch airlines was originally set up in 1968 and has carried out the same core business for almost 50 years. In 2016 Monarch airlines transported over 6 million passengers to destinations across Europe, making it the UK’s fifth largest airline. Despite this, the company posted losses of nearly £300 million in 2016 against profits of £27 million in its 2015 accounts.
Amongst the reasons cited for Monarch Airlines entering administration was the unrest in Turkey and Egypt reducing demand for flights to these areas. As a result, it was forced into competition with the budget airlines to popular destinations such as Spain and Greece. Due to the fallout on the pound from the Brexit vote, the number of travellers has reduced. Whilst Monarch carried more passengers than the previous year, revenues on these flights were significantly lower and planes were not being filled.
The consequential losses put Monarch’s ATOL licence at risk with the Civil Aviation Authority (CAA). The CAA will not issue long-term ATOL licences where significant losses are posted by an airline as it demonstrates a significant risk of insolvency. Monarch airlines were in their second term of a temporary licence and due to no signs of improvement, a decision was made at midnight on 1 October 2017. With no ATOL licence Monarch deemed the situation could not improve and filed for Administration at the earlier possible time.
Administration of Monarch Airlines
It is often the case that companies entering administration can be traded by an administrator, however, this is not the case with an airline business model. Due to all the payments being made up front and bookings often being taken as much as 12 months in advance, there are no liquid funds to pay the day-to-day expenses to allow for trading (read: The reasons why administration fails or succeeds).
As well as this, the costs of insuring an airline in administration would be astronomical so there is generally no prospect of an airline which has entered administration continuing to trade. Even the appointment timing had to be strategic to ensure all planes were on the ground, hence the requirement for the out of hours administration appointment. As a result, the 2,100 employees at Monarch Airlines are likely to be made redundant today with any entitlements being paid by the redundancy payments office.
How are Monarch Airlines customers affected?
As a result of Monarch Airlines immediately ceasing to trade on entering administration all flights have been cancelled and customers received a text confirming the same. With the administration being a strong possibility due to the known issues with the ATOL licence, the CAA already had a contingency plan in place. Over 30 planes have already been made available them to bring home the 110,000 passengers who are currently abroad over the next two weeks. Customers who booked a flight only in this period are also covered for a flight by the CAA who have set up a website to provide information on the situation.
Customers who were due to leave the UK will not receive replacement flights and will need to make their own arrangements if they wish to continue to travel. Customers with return flights booked after 16 October 2017 will also need to make their own travel arrangements.
In terms of seeking refunds or compensation the ATOL protection only covers packaged holidays. Those who have booked flight only will therefore not be able to make a claim with ATOL. It is estimated that this will affect around half of the customers who have flights booked after 16 October 2017. Those customers would have the following resource in the below order:
- Seek a chargeback from your credit card provider.
- Claim on your travel insurance policy.
- Make an unsecured claim in the administration.
Of all the types of company which can enter administration, airlines generally have the biggest impact on the general public. With Monarch airlines being the biggest airline to enter administration this will be a massive undertaking for the CAA to get people home again. It is also likely many customers will be left out of pocket if they are unable to claim a chargeback or are not covered by their travel insurance.