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Why Monarch is the latest airline to go under

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It is tempting to say that the collapse of Monarch Airlines, while likely to result in the biggest peacetime repatriation ever, is pretty straightforward in business terms.

On the face of it, this is little more than an over-geared company finally succumbing to its debts, as happens in many other sectors all the time.
Yet there are a number of other reasons why Monarch has turned up its toes.
One was the airline’s weak financial position.
Another is the gradual decline, since the rise of the low-cost carriers, of charter flying.
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Exacerbating the problem for Monarch has been the litany of factors outlined by Andrew Swaffield, its chief executive, including terror attacks in Egypt and Tunisia, a collapse in demand for flights to Turkey, as well as the fall in sterling following the Brexit vote, which has pushed up the cost of jet fuel – which is priced in US dollars – for British carriers.

Image: Monarch is the latest airline to go under
Overwhelmingly, though, this is a story of what happens when supply exceeds demand which, as all economists know, is that prices come down.
There has simply been too much capacity in the short-haul aviation market in Europe – which is why Monarch is the third major European airline to go under this year.
Alitalia filed for bankruptcy in May and is currently in the process of being auctioned off.
:: Monarch Airline collapse affects 860,000 customers
It was followed by Air Berlin, Germany’s second-largest carrier, whose long-haul services will come to an end later this month after it became insolvent in August. And now Monarch.
This over-capacity is a major structural issue and different carriers have responded in different ways.
In the case of Ryanair, for example, it has been by trying to keep fares at ultra-low levels by running very tight schedules with little slack which, in recent weeks, has resulted in unintended flight cancellations.
Ultimately, there are likely to be more airline failures, or at the very least more consolidation in the industry. How might this pan out?

Video: ‘Mum was in tears’: Monarch passengers hit

Dame Carolyn McCall, the outgoing chief executive of EasyJet, has just sketched out a scenario.

In a presentation to shareholders last week, she said the European airline market resembled that of North America a decade ago.
She noted that, ten years ago, there were eight major airlines operating in the US and that the top four only accounted for between 40-45% of capacity.
Today, the top four – American, United, Delta and SouthWest – account for 70% of the market.
In Europe, at present, the top four carriers – Ryanair, EasyJet, Lufthansa and IAG, the parent of British Airways and Aer Lingus – only account for 49% of the market.
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Dame Carolyn added: “This is going to change. European governments are finally coming to grips [with the fact] that they can’t protect their markets from more efficient airlines, such as low-cost carriers.
“Wave one has already begun, with airlines such as Air Berlin and Alitalia that are in the midst of public sales. And this is just the beginning.
“It’s going to take some time to play out, but I believe we will start to see mergers and consolidation between non-dying airlines to create real leadership positions and superior customer offerings.”
In this shake-out, the low-cost carriers like Ryanair and EasyJet have an advantage over what are known as the ‘legacy’ carriers like British Airways, Lufthansa and Air France, all of which are heavily unionised, have costly pension obligations and which mainly operate to and from expensive and congested airports like Heathrow, Frankfurt and Paris Charles de Gaulle.
They also find themselves having to compete at one end with low-cost carriers in the European short-haul market and, on the other, in the long-haul market with the lavishly-funded Gulf carriers and American carriers that, having seen their market consolidate already, enjoy improving finances.
Now comes an additional threat, in the form of low-cost long-haul carriers, such as Norwegian.
Only the best-managed and most adaptable will survive.
IAG, whatever people may think of customer standards at British Airways, certainly looks to be up for the fight and recently began offering low-cost services on some routes out of Gatwick in head-to-head competition with Norwegian.
But it is possible not all the old legacy carriers will survive. In the cut-throat European short-haul market, meanwhile, casualties are inevitable.

Source: SKY