The collapse of UK leisure carrier Monarch Airlines is bad for those travelers whose vacations are upended; worse for the almost 2,000 people who have lost their jobs with a company that has entered bankruptcy after 50 years of operating. But it should have come as no surprise, given what is happening in the European airline market.
As ATW noted in its September editorial, Europe’s leisure travelers have too much of a good thing. Ultra-LCCs like easyJet, Ryanair, Norwegian and Wizz Air have the right business model and, more importantly, the right costs to sustain their growth. They can offer low, low fares and be profitable.
But there are now too many European airlines competing in directly over-lapping markets. And if Ryanair or easyJet are the butterflies flapping their wings in your market, you’d better be sure you can compete on fares and costs. You also need the business savvy to adapt quickly to changing markets.
As Monarch, Alitalia and airberlin demonstrate, pouring money into an airline is not the answer. Greybull Capital injected millions into Monarch, as did Etihad with Alitalia and airberlin. But Monarch was not able to switch course when the tourist markets it depended on in Turkey, Egypt and Tunisia dried up because of terrorism and political concerns. Its cost base could not withstand the triple blow of a fall in demand, higher fuel costs and the collapse of the pound after the Brexit referendum. But mostly, it could not find a sustainable business model in the new world of fierce ULCC competition.
The US majors are adapting their business models to compete with ULCCs like Spirit Airways and Frontier Airlines. They are segmenting their main cabin product so they can match their bare-bones fares. Passengers that select “basic economy” options are not allowed to pre-select their seats, will be last to board, cannot take on a roller-bag or use the overhead bin, and must pay extra for a checked bag (thought they get the same snacks, beverages and free entertainment as other economy passengers). That’s helping to keep the US majors not just in the game, but also profitable.
However, a consolidated US airline industry also has fewer players with greater dominance of the US domestic market. The European industry, in contrast, still clings to its flagships (albeit grouped under the Air France-KLM, IAG and Lufthansa umbrella companies) even as the ULCCs spread. Monarch’s wings, in the end, were too fragile to stay the course.
Karen Walker karen.walker@penton.com
