The collapse of Monarch and Ryanair’s woes with its pilots’ holiday rotas have thrust airlines firmly into the headlines. Are these isolated pockets of turbulence or are airlines a risky investment?
Monarch going into administration may have come as a nasty surprise to people who had booked flights and holidays with the company but there were signs last year that all was not well.
The end for Monarch could have come a year sooner as the CAA was close to not renewing its licence last September. The CAA even went as far as spending £25m to charter planes to get holidaymakers home in case Monarch went under.
It took an injection of £165m from Monarch’s owner Greybull Capital to convince the CAA to let Monarch carry on flying.
Things had not been going Monarch’s way. Terrorist attacks in two of its key markets, Egypt and Tunisia, had seen the Foreign Office advise against travel to those destinations. Unrest in Turkey, another key destination, saw demand plummet.
Monarch was hit further by the weak pound as most of its income was in pounds but most of its outgoings, such as aviation fuel, were in dollars.
Monarch’s demise was good news for other airlines, which saw their shares prices rise. On the day the news broke, BA’s parent company IAG’s shares closed up 2.36%, easyJet was up 5% and Ryanair, which is listed in Dublin, was up 3.87%.
Flying into trouble
Transport Secretary Chris Grayling seemed confident that the Monarch collapse was a one off, saying: “Let nobody think this is a sign of general problems in our aviation sector. Monarch has been a victim of the success of other airlines, such as easyJet and Jet2.”
But Monarch is not the only European airline to enter administration recently. Alitalia went under in May and airberlin in August. Both airlines went into administration after their common major shareholder, Etihad, decided not to put up any more funding.
They are both still flying thanks to loans from their respective governments. Alitalia is being propped up by a €600m bridging loan. The airline has received more than €7bn in state aid over the past decade. Airberlin, the second largest airline in Germany, has benefitted from a €150m loan.
Continuing flying while in administration does not seem to be an option in the UK. Monarch’s chief executive Andrew Swaffield has said that: “The UK’s insolvency framework doesn’t allow airlines to continue flying, unlike in Germany or Italy.”
Ryanair’s problems with its pilots’ rotas have led to up to 50 flights a day being cancelled until the end of October and 18,000 flights on 34 routes will go over the winter period between November and March. Some 750,000 passengers have been affected.
Employing former Monarch pilots might be a solution but they are used to flying Airbus planes and would have to be retrained to operate Ryanair’s all-Boeing fleet.
Amid reports that Ryanair pilots are being tempted away to rivals Jet2 and Norwegian, Ryanair chief executive Michael O’Leary has written to pilots trying to appeal to their better nature and offering them a loyalty/productivity bonus of up to €12,000.