Monarch Airlines revenue up 10% in FY2012, pax numbers up 16%
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Monarch Airlines restructure 2: lower fuel, labour productivity drive return to profit. Risks remain
Part 1 of CAPA's analysis of Monarch's restructuring examined capacity cuts and the shrinking of the fleet and network. An obvious sign of success is that the Monarch Group and Monarch Airlines returned to profit in FY2015. The restructuring helped to stabilise load factor, reduce the seasonality in the business and improve its on-time performance. However, average daily aircraft utilisation continued to fall and load factor has fallen again in the first part of FY2016.
Part 2 of CAPA's analysis examines how the restructuring improved Monarch's financial performance. The return to profit by the UK LCC was driven both by a rise in unit revenue and a fall in unit cost – that cost itself helped by lower fuel prices and improved labour productivity.
Looking ahead, Monarch's Boeing 737MAX deliveries from 2018 should benefit the bottom line. However, in the meantime leisure-focused markets face considerable volatility from geopolitical and macroeconomic uncertainties, not helped by the UK's recent Brexit vote. Although back in profit, Monarch still needs shareholder support to fund its liquidity needs and there have been some reports – denied by the airline – that its owners may be considering a sale. The restructuring now gives it a base from which to address its challenges.
Monarch Airlines restructure Part 1: a solid return to profit, with reduced fleet
The privately owned Monarch Group no longer publishes a glossy annual report for all to see, a practice that has been discontinued since its 2014 acquisition by turnaround specialists Greybull Capital. Such reticence is sometimes a sign of having something to hide. Not so here; the group's statutory accounts for the year ended Oct-2015 were recently filed with the UK's Companies House. They show a strong return to profit for the Monarch Group, whose largest business is Monarch Airlines.
In the previous year, FY2014, the airline had grown too rapidly and plunged into a heavy loss, while the Monarch Group had almost run out of cash. A subsequent restructuring programme, devised by the management and backed by the new shareholders, sought to restore profitability. The FY2015 accounts demonstrate the success of the restructuring, which involved capacity cuts (mainly in the summer), fleet reduction, withdrawal from charter and long haul flying, a shrinking of the workforce and new labour contracts. With profits restored, Monarch is now growing once more.
This first part of CAPA's analysis of Monarch's restructuring examines the changes to its capacity, schedule network and fleet. Part 2 will consider its improved financial results and future prospects.