I’M ALL RIGHT CHUKKA!
Monarch boss in new job storm
WHEN Monarch Airlines’ poloplaying chief executive Andrew Swaffield signed up for his tour of duty less than three years ago he was expecting to make a fortune.
A successful revival of the business would have landed him tens of millions of pounds.
But last week – with the airline in ruins – the £568,000-a-year boss had already switched his focus. He had rebooted his career and was making a fresh start by registering a business consultancy to run from home.
Friends admitted it was an error of judgment at a time when the ink was still drying on the documents appointing Monarch’s insolvency practitioners.
Perhaps Swaffield could be forgiven for switching to auto pilot because – like his staff – he was made redundant on Monday.
One friend said: ‘He didn’t for a moment mean to upset the staff further. It’s the last thing he’d want. But perhaps it was insensitive.’
Swaffield, who lives with his partner William in Sussex, admits to being ‘consumed’ by polo. He has high overheads and is believed to invest as much as £60,000 of his own cash in his team, Alcedo, each season. One of his players commands fees of £3,000 per game.
The dramatic implosion of Britain’s fifth biggest airline makes it the third European carrier to collapse in less than six months.
Two weeks ago, as the options for survival diminished rapidly, Monarch owner Greybull Capital sent a missive to the Department of Transport. They pleaded for a few extra weeks to clear the busy halfterm holiday schedule at the end of October and find a buyer.
Greybull, led by the mysterious brothers Marc and Nathaniel Meyohas, was even considering offering any buyer a dowry.
But Air Berlin and Alitalia had already collapsed earlier this year and were openly talking to buyers while restructuring at a leisurely pace under their domestic bankruptcy protection laws – something not available in the UK.
The three options presented to the DoT looked desperate. The first required a loan to carry on trading until Monarch received 45 new Boeing aircraft to boost its long-haul business to the US and Caribbean. That was highly unrealistic, sources say.
The other two alternatives required financial cover to extend Monarch’s life ‘either by two months – or just a few weeks’. But a source said: ‘Both of those also required a willing buyer to be waiting in the wings and they just weren’t there.’
Monarch’s rapid decline began almost as soon as Greybull pumped £165million into the business a year ago. The airline and many of its rivals had already begun diverting flights from terrorist-blighted areas such as Egypt, Tunisia and Turkey and instead flying to highly competi- tive destinations such as France and Spain. But in January that began to accelerate. The result was overcapacity with flights on Monarch routes rising 30 per cent forcing average ticket prices on Mediterranean flights to nosedive from £110 to about £80. Industry observers were ‘shocked’ by the admission of a £198million write-down in the accounts for ‘onerous’ airline leases – a significant warning of its financial instability. Its ageing fleet needed £80 million spent on repairs every year. Ironically for Monarch, flight search firm Skyscanner said this week that the collapse had helped October airline seat prices to spike by 23 per cent – reversing this year’s trend.
But the story has another twist. Monarch’s downfall could help Ryanair boss Michael O’Leary to ease the pilot shortage that has forced him to cancel 715,000 flights. O’Leary last month took a swipe at Monarch, by then desperately searching for someone willing to pay £1 to buy the business.
The publicity hound said it was an ‘open secret’ that Monarch was ‘in trouble’. Ryanair launched a massive sale just days before Monarch disintegrated. O’Leary has also made disparaging remarks about the financial health of rival Norwegian – another Boeing operator – and suggested that pilots would be better off working for him.
Whether or not there is a Machiavellian motive behind O’Leary’s comments, one senior airline industry figure said they would be ‘deeply unhelpful’ to anyone facing financial difficulty.
With prices rising again it is arguably the consumer that is losing out from Monarch’s sudden departure.
One source said: ‘There was a lot of affection for Monarch. The service was a cut above budget airlines, many older passengers knew that. The only problem was, with so many cheap airlines operating, they obviously weren’t willing to pay more for it. That, as much as any other reason, is why Monarch is no longer here.’
HOLIDAYMAKERS were plunged into chaos this week as airline Monarch announced it had gone into administration. The closure of the business, which could affect up to 850,000 travellers, came hot on the heels of the debacle at Ryanair, which has seen up to 50 flights a day cancelled and 34 routes scrapped.
Amid all the turmoil it is, perhaps, understandable that budget carrier
easyJet has seen its share price climb almost 10 per cent to 1263p over the past month, on the basis it is well placed to cash in on its rivals’ woes. The orange-emblazoned airline has long had the reputation of being the friendlier counterpart to its Irish competitor and now, while Monarch looks for a buyer and Ryanair remains in thousands of travellers’ bad books, easyJet is the obvious budget alternative for holidaymakers.
Any rival leaving the market reduces the number of available seats, which could help put a floor under falling prices.
EasyJet obviously feels fairly confident about the future. Last month, it put in a bid to acquire part of Air Berlin’s short-haul business after that firm went into insolvency. It could buy up to 30 aircraft from the business if its bid is accepted. Analysts say it could boost profits by as much as 10 per cent.
Adding some of Monarch’s fleet to its numbers could provide a similar enhancement. But a deal with either airline would also mean taking on more debt at a time when operating costs are already rising – though the pound has recovered some strength in recent weeks, the oil price is up about 25 per cent since June alone. As well as that, new entrants into the budget flights market, such as Wizz Air and Norwegian, have increased capacity and therefore put downward pressure on prices. Many travellers are abandoning overseas holiday plans for myriad reasons, including a weaker pound and heightened terrorism fears. In its first-half figures, easyJet revealed losses had climbed from £21 million to £212 million, blaming weak sterling and the timing of Easter. But the airline had better news for investors in its third-quarter figures. In the three months to June 30, revenue was 16 per cent ahead of the same period a year ago at £1.4billion, with revenue per seat rising 2.2 per cent to £57.78.
Latest figures show it carried 8.2 million customers in August – an increase of 9.4 per cent from a year ago. It estimates pre-tax profits for the year in the range of £380 million to £420 million.
Yet questions remain as to whether easyJet is the right bet to make on how this particular story plays out. The turmoil passengers have endured in recent weeks could cast a shadow on the entire budget end of the airline sector.
Some have predicted that consumers could turn away from cheap flights in their droves in favour of quality carriers, which might be perceived as a safer pair of hands. If that happens, then it is firms such as BA-owner International Consolidated Airlines Group (IAG) that will benefit.
This theory doesn’t appear to have made it to the stock market yet, however. IAG’s shares are up a little over 1 per cent over the past month to 615p. Not that things aren’t going well; in its half-year results the group reported operating profits of £797million for the six months to June 30, some 13.8 per cent more than previously. Revenue edged up 0.9 per cent to £9.7billion and August passenger numbers were 0.7 per cent higher than a year ago at 10.6million.
Midas verdict: The real question is whether or not consumers have had enough of budget airlines. If they shift towards quality carriers, it could spell a sell for the shares. But if price is passengers’ main priority – and people do like a bargain – then easyJet is the obvious beneficiary of this latest upheaval. Buy. Traded on: Main market Ticker: Contact: investor.relations@easyjet.com or visit corporate.easyjet.com