Loizos Heracleous, Professor of Strategy at Warwick Business School, comments on the collapse of Monarch Airlines.

"The bankruptcy of Monarch Airlines is not entirely surprising, given recent performance declines and its brush with death in 2014 when it had to be rescued by Greybull Capital. The turnaround programme initiated at that time reduced the fleet size of Monarch, focused it on more profitable routes, and cut costs by reducing employee numbers and salaries. However, costs at Monarch still remained significantly above those of key competitors such as Ryanair, which made Monarch vulnerable to price wars and variations in demand in the intensely competitive low cost airline sector.

In this sector scale is important, as it allows more efficient use of heavy fixed assets and more market power. After its turnaround in 2015 Monarch was seeking to increase scale, either by making acquisitions itself, or by being acquired by another low cost carrier. None of these options worked out however, leaving Monarch in a very difficult strategic position. That is, Monarch was an airline competing in a cutthroat sector, without the scale, brand strength and efficiency needed to survive in that sector. While it is regrettable that so many customers are being impacted by Monarch’s demise, reasonable reductions in capacity and ultimately higher consolidation will be helpful for the performance of low cost airlines, given persistent overcapacity in the industry".

 

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