Given the impact of The Monarch debacle I make no excuses for sub copying this analysis here.
PPrune deserves this kind of forensic analysis.
In the aftermath of the tragic collapse of Monarch Airlines, Manchester Airport and the airlines serving it face a number of crucial decisions going forward. Minds will have been exercised in airline and airport boardrooms across the country (and beyond) as strategic plans are put into action in response to this crisis.
Of course, the business world is ruthless and unforgiving. Crisis for one company spells major opportunity for others. Court Line, Intasun / Air Europe, Globespan, XL Group, BMI Baby ... the demise of all these brands spelt heartbreak for their employees but a chance for surviving companies to grow and prosper in the vacuum left behind. Now it is Monarch's turn to exit the stage and make way for the next generation of success.
So, what does all this mean from a Manchester Airport perspective? Monarch's based fleet consisted of 7 x A321 and 2 x A320. All nine aircraft flew intensively, and generally with high load factors. So at face value, Manchester ideally needs to replace nine based units and around 1.5 million passengers per year. How realistic is this? On the plus side, Monarch had very few unduplicated MAN routes. Zagreb and Verona spring to mind ... both my recent Zagreb flights were packed, so maybe an opportunity for someone like EasyJet there? And Verona ... Lake Garda will never go out of fashion.
Well, first we have to acknowledge some really tough home truths. There is a very good reason why Monarch Airlines failed. Angry people will call out management failings and Greybull Capital, but the reality is that Monarch had become a business which couldn't limp on without regular infusions of fresh cash to burn. It's been rinse and repeat for years now. Monarch had become a "me too" player in the UK short-haul leisure market, a battleground littered with overcapacity and uneconomic yields. Many of Monarch's competitors enjoyed advantages which they didn't share: lower operating costs, more diverse networks, less exposure to the Med. Monarch had little room to manoeuvre into new markets and no pricing power to charge economic fares on it's core routes. Every option open to them meant bleeding more red ink. This sad ending had become inevitable. If anything, the biggest surprise is that Greybull put up more money at ATOL-renewal time twelve months ago. The truth is we had a bonus year out of Monarch Airlines. And Greybull - to their credit - threw alot of money into providing that lifeline. They tried to put a viable deal together during that reprieve year. But it just proved too big an ask.
Meanwhile, both Norwegian International and Vueling Airlines muscled into these same crowded markets from MAN. And around a year later promptly withdrew again. That is very telling about the state of the market. These two couldn't make Manchester to the Med resorts work either. The margins aren't there. Vueling has now retrenched to its daily service between MAN and its hub at BCN. Norwegian is back on the Scandinavian routes. Monarch tell us that in 2017 they flew 14% more passengers but took £100m less in fares. Losses were estimated at £60m for 2017, with projections showing that the loss would rise to £100m in 2018. The show couldn't go on.
In the light of the above, one thing is very clear. The market from Manchester to the Med resorts is likely to support significantly fewer seats going forward. Yes, we can point to high load factors, but it is yield which really matters. The question now is where is the equilibrium between two key numbers: total 2017 Manchester short-haul leisure capacity, and that number minus the programmes of Monarch, Norwegian and Vueling. I don't expect to see all of that shortfall made good, but hopefully some of it can be.
Who are the key players left behind in this market segment? I would say principally Jet2.com, EasyJet, Ryanair, Thomas Cook, TUI UK (Thomson). And there is a case for including IAG as well. But how much will each contribute to filling the void ... it is in nobody's interests to swamp the market again. Higher fares will be the goal.
Unfortunately, the answer isn't a simple one. There are complicating factors beyond the obvious which will restrict the response of some of these carriers. Yes, attractive slots and overnight aircraft parking positions have just come free at MAN. So run in there and make your land-grab, right? But it isn't so straightforward. Similar slots have just come free at LGW (big draw!), LTN and BHX. But for companies like EasyJet, Ryanair and IAG these are not the only selection boxes which have suddenly been flung open. They must also consider Dusseldorf and Berlin Tegel (Air Berlin legacy), Roma Fiumicino and Milano Linate (Alitalia). Bagging those slots is really attractive too. With GBP/EUR exchange rates, those continental slots could be seen as a better short-term bet by some. And unfortunately, carriers can't just magic up more aeroplanes to fill these slots. They have a finite pool and must disperse their fleets wisely.
But perhaps it is Manchester Airport itself which throws up the biggest roadblock of all. Monarch Airlines operated out of Terminal 2. And that is where the new vacancies have arisen. Now that is a major headache for most. The exception is TUI Airlines UK (Thomson). Should they opt to add a frame or two at MAN they're well placed to do so. It should be no problem for them as a T2 incumbent. But TUI is a notoriously cautious company anyway ... we'd probably see only very modest expansion from them, and they (TUI) are also amongst the best placed to soak up former Air Berlin opportunities in their native Germany. Our other likely players are Ryanair in T3, and EasyJet, Jet2.com and Thomas Cook over in T1. And therein lies a huge problem.
Ryanair loves it's T3 home at MAN. Even though they're bulked out at nine based aircraft. They can't just add frames at T3, and it seems inconceivable that they'd go for a split-terminal operation. They could very easily be physically unable to grow at MAN. And in that case the news could get worse for MAN: their route to expanding on core leisure routes such as AGP, PMI, ALC, FAO etc. could be to swap out more niche routes to other airports such as LPL, LBA and EMA. MAG's enduring failure to address the Ryanair T3 squeeze really risks coming back to bite here.
Over at T1 the picture isn't much better. EasyJet, Jet2 and Thomas Cook go a long way to bulking out that terminal as well. They can't just add unlimited frames even if they wanted to. In an ideal world, MAG would persuade one of these 'Big 3' to switch across to T2. But who will be up for that? Especially during the earliest phases of TP disruption. Would any of them consider a short-term split-terminal operation until 'TP Pier 1' is completed? Thomas Cook appears out of the question ... they need T1's widebody stands. An EasyJet switch would be physically doable, but I'm not sure that the airline would perceive any advantage to them in this. Pier B stands suit their needs well. Jet2 enjoys almost bespoke facilities in T1 with their own check-in and security hall. But their extensive use of remote parking makes them the best possibility of accepting some kind of short-term flexible arrangement using bussing etc. And my guess is that Jet 2, probably the most directly advantaged by Monarch's sad plight, would be the company most likely to expand capacity. They also don't have the distraction of managing bases in Germany and Italy etc.
So, as we see, issues such as distribution of carriers by terminal will also have a major role to play in the recovery at MAN. Other wildcards could include the response from IAG. They have been looking to expand the niche CityFlyer E190 programme. And we shouldn't absolutely rule out the possibility of the Vueling brand trying again, although they may not be keen after a difficult 2017 season in the Manchester short-haul leisure bunfight eg Forums4 Airports. However, the one glimmer of hope here is that an entrant such as Vueling (or even Norwegian) could be told you get the slots and the overnight parking positions if you're prepared to switch to T2.
There will be lots more to wrap our heads around as all this unfolds. But consider some other silver linings (from the point of view of the competition). Thomas Cook and Virgin have just sidestepped the planned advent of a new no-frills North Atlantic challenger in Monarch Mk2. They must be privately jubilant. But the loudest cheers must surely be coming from Primera Air who have seemingly dodged a bullet (or a cannonball?) at BHX. Forums4Airports.
Meanwhile, the one bit of good news which we do have is that Monarch Airlines Engineering Limited (MAEL) survives. A high quality operation accounting for many skilled jobs. They shouldn't be a difficult asset to sell. Good luck to all involved with them going forward.
Observations and discussions welcome.