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.