Brexit, terrorism blamed for collapse of Monarch Airlines | Business| Economy and finance news from a German perspective | DW | 02.10.2017
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Brexit, terrorism blamed for collapse of Monarch Airlines

Terror fears and a fall in the British pound after the Brexit vote have been cited as causing the budget airline to go bust. A massive operation to repatriate more than 100,000 tourists is underway.

Britain's decision to leave the European Union is being felt by more than 860,000 British holidaymakers - more than a hundred thousand of them stuck abroad - after the collapse of Monarch Airlines on Monday, in what is billed as the largest failure of a UK airline.

The budget carrier was forced to appoint accountancy firm KPMG as liquidators after Britain's air regulator refused to renew Monarch's license to sell holidays that offer advanced consumer protection in the event of the bankruptcy of any tourism provider.

Aviation analysts said a 20 percent fall in the value of the British pound since the June 2016 Brexit vote had left the budget airline with an extra bill of 50 million pounds (€56.6 million, $66.5 million) for aviation fuel and the cost of leasing aircraft, which is paid for in dollars.

Passengers fell by a quarter

Commentators said the currency's weakness compounded the airline's troubles after it saw a 19 percent fall in passengers carried in 2015 at 5.7 million compared to the previous year and passenger numbers fell a further 5 percent in 2016.

Tourists stayed away from many of Monarch's traditional destinations in Egypt, Tunisia and Turkey after much-publicized terrorist attacks.

The airline's Chief Executive Andrew Swaffield was cited by The Telegraph newspaper as saying that despite a recovery in passengers carried in the first half of 2017, the firm was still bringing in 100 million pounds less in revenue.

"Monarch tried to reinvent itself as a low cost airline but was late into an already crowded market with this model," aviation analyst John Strickland told DW, referring to major competitors EasyJet and Ryanair who both dominate Europe's budget airline sector.

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Strickland said Monarch had a "loyal following," but the fall in tourism to Middle Eastern and North African destinations due to terror fears had led to "over-capacity in other key markets such as Spain," where air tickets are have been under intense price pressure.

Despite also attempting a longer-term move from short-haul to long-haul travel to reduce its losses, the brand was not strong enough "to deliver sustainable profits for the long term."

Launched in 1968, Monarch initially offered chartered flights to Britain's booming package holiday industry before quickly adding regular scheduled flights to Spain, Greece and Turkey to achieve even bigger profits.

But it has struggled against its more aggressive competitors who have built much bigger brands through clever marketing that saw both airlines a regular feature of television docu-soaps that were set in Britain's regional airports.

Monarch Airlines passenger information

Monarch passengers were told on Monday not to travel to UK airports to take their flights

No government support

Monday's announcement was quickly rounded upon by opposition politicians and unions who blamed the Conservative government of Prime Minister Theresa May for failing to step in with a bridging loan to allow the airline to restructure its operations. In August, German budget carrier Air Berlin filed for insolvency but remained in the skies due to a €150-million government loan.

"The reasons for Monarch's failure ... include the lack of confidence caused by the collapse in the pound and the resulting lack of confidence in the government itself," said Vince Cable, leader of the Liberal Democrat party.

The UK's biggest trade union, Unite, said another effect of the Brexit vote is the uncertainty over whether British airlines will have unfettered access to European skies when the country leaves the EU in 2019. That could have hindered further investment in the failing airline, which was bought by private equity firm Greybull Capital in 2014.

The British government was "content to sit on its hands and allow one of the UK's oldest airlines go into administration," said Oliver Richardson, a spokesman for Unite.

Help for stranded passengers

British Transport Secretary Chris Grayling rejected suggestions that the referendum result was a factor in the airline's demise, but admitted the collapse was an "unprecedented situation” that calls for an "unprecedented response.”

Grayling said the government was chartering more than 30 aircraft in what's described as the country's "biggest ever peacetime repatriation" to bring customers home. As well as the 110,000 passengers currently abroad, some 750,000 future Monarch bookings have been canceled.

KPMG partner Blair Nimmo said administrators are now considering breaking up the company as no buyer has been found for the entire airline and tour operator business.

The company employs 2,500 people and has operating bases at London Luton, London Gatwick, Manchester, Birmingham and Leeds-Bradford airports.

Monarch and Air Berlin aren't the only two airlines to declare bankcrupty this year. Italy's flagship carrrier AlItalia went into administration in May and received a €600-million bridging loan while it sought a buyer.

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