Monarch Airlines. Part 2: Why one of Europe's lowest cost airlines is right to seek cost reductions

Monarch Airlines recorded a pre-tax profit in 2013, recovering from losses in 2012. This was driven by unit revenue gains outpacing a small rise in CASK. Nevertheless, its track record is one of losses and only occasional profitable years with thin margins. Traffic growth over a number of years, driven by a switch from charter to scheduled flying, has not typically led to profit growth.

Fleet expansion has contributed to falling aircraft utilisation rates and the airline's strong focus on leisure markets gives it one of the most seasonal demand patterns among European airlines.

In Part 1 of our Monarch analysis, we looked at most recent financial results of the airline's parent, the Monarch Group. We also reviewed developments initiated by the new management of the Group, in connection with strategy, ownership and labour conditions.

In this second part, we focus more closely on Monarch Airlines and suggest that management is right to be seeking cost reductions from what is already one of Europe's lowest cost operators. It will also need a longer term growth plan if it is to avoid becoming marginalised by its bigger LCC rivals.