Just 12 weeks into his role as Monarch Group CEO last year, Andrew Swaffield implemented radical measures to save the entity’s beleaguered airline business.
His no-nonsense restructuring strategy saw him strip £200 million of costs out of the business as trade unions agreed to 700 redundancies and staff accepted pay cuts of up to 30%. Swaffield also returned 10 aircraft as he switched Monarch’s model to short-haul scheduled flights only, dropping long haul and charter services altogether.
This led to the group announcing in April that it had improved its winter losses by £40 million, £10 million of which was driven by lower fuel prices, but the majority, £30 million, a direct result of the restructure.
“By October we will deliver a turnaround in excess of £100 million in profit terms from last year’s losses,” he told Travel Daily UK at last week’s 2016 ABTA Convention in Costa Navarino, Greece.
Swaffield has also revealed the well loved Cosmos Holidays brand is to become known as Monarch as the airline and tour operator move towards a “single brand strategy”. Trade-only brands Avro and somewhere2stay.com will also be Monarch branded and a new agent portal, monarchagents.co.uk, will be launched by the end of the year. However, the Cosmos name will continue to be used by Cosmos Tours and Cruises, a separate entity that was not subject to the Monarch rescue plan.
Here, Swaffield discusses the benefits of Monarch’s new business model and explains why Europe’s airline industry is poised to undergo a period of rapid consolidation.
Q: You reduced winter losses by £40 million (November to April); what are the full-year prospects for the airline?
A: We will be making a profit in the double-digit millions this year (November 2014 to October 2015) following last year’s restructure, which was deep and severe. We are now focused on delivering sustainable profit; it’s a journey that takes a while but we are bringing the business back to full health. We took out £200 million in costs and we have a strong consumer base. We have 10 fewer planes, but productivity and utilisation has improved and we have carried 6.6 million passengers this year. We have also improved our punctuality and halved our delayed minutes over the past year, plus we have added eight points of punctuality to our departures within 15 minutes. We have also reduced our carbon footprint by 20% following a series of very big changes.
Q: What summer trends did you witness?
A: We are a Mediterranean-spread European business and everything in the west – Spain, Portugal and mainland Europe etc – has been very positive while the east has been struggling slightly. Pre-Euro Zone crisis Greek was depressed but it picked up afterwards, whereas Turkey is still struggling, as are Cyprus and Egypt. We had a very good summer in general, buoyed by the value of the pound (against the Euro), which was very good for outbound tourism. The economy is picking up and there is more confidence in the UK market, which has come out in our figures.
Q: How have tour operators reacted to your move to operating short-haul scheduled flights only?
A: We were 85% scheduled, 15% charter, but post-restructure we are 100% scheduled. Our message to tour operators is that we are very open to doing business with them. My view is that the future of charter is now going to be refined to likes of Tui and Thomas Cook and specialists like Titan that provide airlift for other airlines and so on. But the charter model that Monarch used is finished so tour operators and low-cost scheduled carriers need to work together.
Q: What does Monarch offer that other LCCs don’t?
A: It’s about our staff and service. People are a huge asset for us. We know there are consumers out there who are drawn to that experience. They don’t necessarily pay more for it but they will choose us over anyone else. Being recommended by customers is very important to us. We are looking to provide airlift for tour operators on a more on-going basis and they cork with us on allocations, for example, if they want more stability.
Q: What does the future hold for Europe’s airline industry?
A: There are about 86 airlines in Europe and many of them are financially unsuccessful because their cost bases are too high and need to be restructured. Only 30 of the top 150 airlines in the world are European, which is disproportionate to the number of airlines there are in Europe. So it’s clear a major restructuring needs to happen in the aviation space and it will result in mergers and acquisitions and consolidation.
There will be fewer players but those that remain will be much stronger, however, it’s not necessarily going to be all about size. If you have a market, a good cost base and a good brand, the future is strong for you. If your cost base is out of control, your future is bleak. It’s not easy process. Many people will fail to do it.
Q: Will Monarch be involved in mergers and acquisitions?
A: Our agenda is around sustainable profitability with a good cost base, which gives us options. We would therefore want to be a player in that mergers and acquisitions activity.
Q: Tell us about your new fleet?
A: We are renewing our fleet with Boeing 737 Max 8 aircraft – 30 firm orders and 15 options. They are 15% more fuel-efficient and a 40% less noise footprint. These will be delivered from our 50th anniversary in April 2018 and will give us the youngest fleet in Europe. Our restructure involved finding new owners and as we return to profitability, it gives us the confidence and ability to finance this fleet. We have 32 aircraft at the moment that we are replacing.
Q: When you became an ABTA board member last year year you said you’d like to get travel industry issues heard in government. What have you achieved to date in this respect?
A: I think the industry needs to talk with one voice and ABTA is a great place to do that. We are talking to the government about apprenticeships, both through ABTA and People First, which is a workplace development charity that I am a board member of. Other issues are APD and airport capacity and we were at the recent Conservative Party conference talking to the aviation minister and giving our views. ABTA does a good job at consultation and lobbying both locally and at a European level, especially when it comes to Open Skies, liberalisation and competition issues.
ABTA has conducted robust research to show the size of the industry to the UK economy. Politicians get that and they are listening to us about issues like APD with improvements already made in terms of what children are charged this year – we hope to keep chipping away at that.
Q: Why is it important to provide industry apprenticeships?
A: There is a demographic time bomb – the rate of childbirth has declined and people are getting older. In eight years’ time the UK will have insufficient workers unless we do something about it. As an industry we need to get better at apprenticeships, training people, getting people back to work after maternity leave and getting older people to work for longer. If we don’t do that we will start to shrink. It has crept up on us and no one realises. At Monarch we have already had 700 engineering apprentices and plan to take on more. We are also encouraging women to come back after maternity leave and not to lose all that valuable skill and getting people to work for longer.