Monarch in Administration
Monarch’s Administration Affects over 400,000 People – Why Did it Happen and What Happens Next?
Now that Monarch, the UK’s 5th biggest airline, has entered into Administration, the repercussions and fall out will be significant once the administrators begin their task of unravelling the detail of what went wrong and why, and then try to do the best they can for all of those affected. In this article, we look at the main causes, how customers will be affected (and get their money back), and what the administration is likely to aim to achieve.
Why has Monarch Gone into Administration?
By law, every company involved in selling flights and holidays that also include flights (package holidays) can only do so if it holds an Air Travel Organiser’s Licence (ATOL) licence. The administration of Monarch was actually triggered by the fact that they did not survive the process for the renewal of its licence.
To renew an ATOL licence, the Civil Aviation Authority (CAA) needs to be certain a company is financially stable enough, with sufficient resources to continue trading for the next 12 months, so that its clients are not left stranded. In Monarch’s case, it had come very close to collapse a year ago, and was rescued at the last minute. This was off the back of a £291 million loss in the year to October 2016, compared to a profit of £27 million the previous year. Things did not improve.
Despite carrying millions of passengers per annum, the perception inside the industry is that Monarch has been struggling for years. The very rapid recent decline in its fortunes have been blamed on several factors, including:
- the fall in the value of the pound
- increased fuel costs and handling charges
- terrorism – leading to the closure of Sharm El Sheikh, and the collapse of the Tunisian and Turkish travel markets
In addition, there has always been the concern that although Monarch were perceived to provide a better experience for the passenger than, say, Ryanair, it was at the cost of precious profit margins in a highly competitive market. Indeed, Monarch’s Chief Executive, Andrew Swaffield, commented that although Monarch had carried 14% more passengers this year, it had done so for £100 million less revenue.
What Happens to the Customers?
Travel industry administrations leave customers stranded on holiday. This can cause major problems. Some need to get back quickly for health reasons, others for work and some have had their dream holiday ruined. It can be truly distressing. At the same time, thousands of customers who have booked and were waiting to travel will have had their holidays cancelled. Work to resolve these issues has to happen very quickly, and the government and the CAA are working together on this, in particular on getting people home. It has been called the largest repatriation of UK citizens since the second world war.
There is also the issue of money back and compensation. These are the key points:
ATOL protects customers when they book a holiday with a UK travel company. It ensures customers do not lose money or become stranded abroad if their travel company collapses. However, this only applies to package holidays and not when the flights and holiday accommodation are booked separately. So what happens if you are not covered by ATOL?
- Firstly, the problem is avoided when payment is made with a credit card. Despite possible credit card surcharges, paying this way gives people the legal protection of section 75 of the Consumer Credit Act, 1979, whereby if you don’t receive the service you have paid for, the card company have to refund your payment, subject to a £100 minimum cost.
- Another option, but only for amounts under £100, is Chargeback. This is not a legal protection, but is a core element of the protection offered by Visa, Mastercard and American Express, whether the payment is via a Credit OR Debit card. Here you ask the card provider to do a chargeback, who asks Monarch’s bank for your money back as the service you purchased has not been received.
We understand that from early next year travel companies will not be able to apply a surcharge to those customers who book by credit card. Perhaps that might encourage more people to pay by credit card? Time will tell.
What is the Administration Likely to Try and Achieve?
Administration ring-fences a company, protecting it from creditors taking enforcement action against it, whilst the administrators work to restructure the company or realise its assets. The first aim of the insolvency practitioner, acting as the administrator, is to rescue and turn the company around. If that is not possible then ways will be sought to avoid liquidating the company, and in so doing, deliver a better result for the creditors.
The administrators of Monarch have been quoted as saying that whilst there is little prospect of a full-company purchase, they are looking at the option of dismantling the company and selling off parts of it – such as routes, landing slots or physical assets – as the most likely outcome.
For help and advice on administrations or any area of insolvency, please contact us, or give our team of insolvency practitioners a call on 0121 200 2962 at our Central Birmingham HQ for an initial chat.
