Terror, Brexit, strikes . . . we flew into a perfect storm. Now we’re back on the up
How Monarch chief fought to bring airline out of a tailspin
THE boss of Monarch Airlines, Andrew Swaffield, has a crucial message. ‘We are not going to go bust.’ He is speaking out in the wake of the drama that threatened to ground the airline as it battled to renew its operating licence.
Monarch, which carries nearly 6million people to the sun every year, almost had its wings clipped after struggling to show the Civil Aviation Authority it had sufficient funds to qualify for its Air Travel Organisers’ Licence by the September 30 deadline.
Every package holiday provider must have Atol protection in place so customers can be flown home if the company goes bust.
With just four hours to go until the deadline, the CAA granted Monarch a temporary licence until it could get sufficient funding from its owner, private equity firm Greybull Capital. Greybull stumped up £165million last week.
Just two days later Swaffield, 49, agrees to meet me at the airline’s Luton headquarters to talk about how the group can thrive after the storm and how in his view it can navigate through the next bout of turbulence – Brexit.
He insists he has got all the financial backing he needs. ‘We are a profitable airline and this funding is part of a six-year business plan,’ he says. ‘Our customers can rely on us.
‘We had a major restructure in 2014 and took £200million out of the cost base. We will report profits of £42 million at our year end shortly.’
But that is considerably less than the £74 million profits last time around and the bailout is the airline’s fourth in five years.
The restructuring has certainly been drastic. Over the past two years Monarch has axed 700 jobs, cutting manpower to 2,800 with remaining staff seeing their salaries slashed by up to 35 per cent, while pensioners took big cuts to their payouts. Even though the Pension Protection Fund was brought in – and it now owns ten per cent of the business – the cuts were clearly not drastic enough.
‘That’s because we flew into a perfect storm over the past year,’ Swaffield says. ‘Terrorist attacks in Egypt meant Sharm el-Sheikh shut and Turkey saw a 65 per cent drop in business.
‘Then there was a huge increase in airline capacity to Spain which drove down prices. After Paris there were more terrorist attacks in Brussels and Nice, along with air traffic control strikes. Then the referendum and now the fall in the pound.’
Swaffield, a grammar school boy from a council estate in Bournemouth who left school at 16 to join Thomas Cook and then British Airways, found himself running Monarch almost by accident.
He joined in April 2014 as managing director. His boss later quit and the airline was sold by the Switzerland-based billionaire Mantegazza family to Greybull. It is a private company and Swaffield’s pay is not revealed but he has earned enough to own his own polo team.
Polo is his way of relaxing, he says, and he is going to need all the help he can get in that regard. Terrorism is not going away, the UK is leaving the European Union and the pound looks like a bungee jumper without a cord. So is Monarch just going to burn through its new stash of cash before crashing?
‘No,’ he says firmly. ‘We wanted to make sure of our financial position once and for all and put the company on a strong footing.’
Key to that was striking a deal last week with aircraft manufacturer Boeing. Swaffield has arranged a sale-and-leaseback arrangement for a new £2.6 billion fleet of up to 45 new 737 Max airliners.
Monarch is understood to have agreed to immediately sell its newly purchased aircraft back to Boeing and then lease them. The aircraft should be in service from 2018 and Swaffield describes the deal as ‘economically transformative’ for the airline.
Swaffield is coy about the details but such arrangements can allow airlines to remove debt from their balance sheets and can also let them reduce their tax bills.
‘It comes down to fuel and maintenance – the two biggest costs for an airline,’ he says. ‘We’re spending £120million a year on fuel for an ageing fleet of Airbuses. The 737 Max planes use 22 per cent less fuel and the effect is transformational for us.’
Aircraft fuel is bought in dollars and ground handling fees are paid in euros, so such efficiencies are more important than ever as sterling continues to fall.
‘Then there are the maintenance costs which for the first six or seven years will be 80 per cent less than our current expenditure,’ he says.
‘The sale-and-leaseback arrangement is the biggest part of our business plan.’
Brexit, meanwhile, could have a potentially catastrophic effect on the low-cost airlines which have thrived because of the creation of the EU’s European Common Aviation Area. This agreement allows any EU airline to fly anywhere in the EU.
But Swaffield, who voted to remain in the EU, takes a robust line on the ECAA. ‘I was a reluctant remainer and I have some sympathy for the idea of leaving the EU completely,’ he says. ‘My advice to my fellow airlines is prepare to leave the ECAA and if we do that I do not believe that air fares will rise as a result.
‘When I started in travel, flying to Paris cost the same as flying to New York – £200 or so. Now it’s £60 to Paris and £300 to £400 to New York and that’s because this agreement has driven down air fares for the last 20 years to the benefit of British people.
‘But Monarch flies British people to the sun and back and has done so for 48 years. We have been offering good prices for our entire history. We do not need the ECAA to carry on that business. The air corridor between the UK and Spain is the biggest one-way leisure corridor in the world. It is 65 per cent of our business and it is hugely important to Spain and Portugal. I am quite certain we will be able to manage to work out extremely sensible arrangements that will keep everybody where they are today.’
He acknowledges that different low-cost airline business models will be affected – such as those which want to expand within the EU – but he says there will be limited impact on Monarch.
‘We are definitely a challenger airline, but our customer base is a valuable asset. They are very loyal and travel with us year after year. Our staff are key and they have been stars through all this. Our passengers know they can rely on us. We never cancel flights – unlike other low-cost airlines – and we are the UK’s most punctual airline.
‘There are some people who just book for the lowest price, but plenty of others appreciate extra civility and warmth for a similar price.’
Swaffield admits there are turbulent times ahead, but his airline has a fine reputation and – he is adamant – enough money to make it work.