Special Report: Monarch flies into a new era

Special Report: Monarch flies into a new eraThe day after securing the Greybull rescue deal, chief executive Andrew Swaffield spoke to Lee Hayhurst about what went wrong and his vision for a more profitable future

Monarch Airlines boss Andrew Swaffield blamed a focus on growth rather than profit for the financial troubles that preceded its sale to Greybull Capital.

Speaking to Travel Weekly the day after he tied up the rescue deal, Swaffield said Monarch, along with some competitors, had taken a “yield holiday” in 2012 and 2013.

He said this benevolent period for the sector ended in the second half of 2013 when supply started to outstrip demand, but Monarch had growth planned that it wasn’t prepared to rein in.

The addition of three aircraft this year – Monarch’s fleet grew from 31 to 42 in three years – was “the final blow”, said Swaffield, and prompted the Mantegazza family to seek a buyer.

“If you run an airline, the key focus needs to be return on the assets, and you need to align that with growth,” he said.

“Monarch focused too much on growth. Return on capital had in effect been suspended.

“Monarch, and actually the industry, had a yield holiday for 18 months. Growth without a competitive cost base means 
you are fully leveraged and you need everything to go absolutely to plan, which in 2012 and 2013 up to August it did.”

Swaffield stressed he was not pointing a finger at Monarch’s previous regime but is determined not to repeat that strategy.

“I’m not critical of anyone because it’s not the first airline this has happened to and it won’t be the last. That’s why aviation is such a rollercoaster for investors.

“The key message is you mustn’t grow too fast. I will never allow us to get carried away. That doesn’t mean we won’t grow.

“There are very few assets in business that are more expensive than aircraft and you can’t have more than you can get a return on.”

Monarch had to agree to swingeing cost cuts, including the shedding of 700 roles, to secure the Greybull deal.

Business plan

But Swaffield said: “Now the really hard work starts to make the business plan happen.

“I don’t want there to be a lull now where we say it’s all done.

“We had to build a business plan for Greybull to invest in.

“But you have to persuade customers to book with you, and compete and deliver the revenue that you said.”A key plank of Monarch’s plans for a debt-free future is a new fleet of Boeing Neo fuel-efficient aircraft, which Swaffield estimated will boost profits by £100 million a year by 2020.

“My goal is to get the business in a really strong shape financially to make sure it’s never again in the position it’s found itself this year,” he said. “That’s going to happen not by taking money from the shareholders but by generating money ourselves.”

Greybull funds

A £125 million capital facility available through the Greybull deal will be dipped into to get Monarch through this winter and again the following winter.

But Swaffield said that after that: “My plan is to get the business debt-free within two or three years and then build the balance sheet to a state of much more creditworthiness.”

This new position of financial strength will, Swaffield added, put Monarch in prime position to take advantage of what he sees as an outbound sector ripe for change.

“I’m really keen to make sure that a completely restructured Monarch, with a great cost base and supportive owner, is a key player leading that change,” he said. “If you’re in a position of strength, you are open for business, and that creates opportunities.

“To do that you’ve got to start with a good business and a strong balance sheet and not be fighting internal battles. I feel we have achieved that.”

Mantegazzas’ legacy

Swaffield admitted that had Monarch reacted to a softening market and cut growth it would have “limped through” this year.

But while the sale and restructuring has been tough and prompted the end of the Mantegazzas’ ownership, it was the medicine Monarch needed.

“The company was asking the Mantegazzas for a lot of money and they just said enough’s enough,” he added.

“They’ve been patient; they’ve helped us sell the business and supported it generously to get that done. It’s been terribly important to me that in doing what we did we don’t kill the patient by damaging the culture.”

Sourced from Travel Weekly

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