Most readers will know now that Monarch, and various subsidiaries of theirs including Somewhere to stay, went into administration in the early hours of 1st October 2017.
As a travel agent, we’ve spent the last few days sorting everyone out who had been caught up with cancelled holidays and flights. That’s the benefit of booking through a travel agent – we were there for our clients from the moment the news broke.
But what went wrong, and how could Britain’s 5th largest airline go to the wall?
I think there were three key factors at play:
- The weakness of Sterling
- Poor decisions made following their last cash crisis a year ago
- Their target market’s obsession with “Cheap”
Monarch’s business takes almost all of it’s revenue in the UK in Sterling. Three of their largest outgoings are aviation fuel, paid in US Dollars, together with hotel room charges and airport fees, paid in Euros. The drop in Sterling since since the Brexit referendum will have hurt their profitability significantly.
This time last year Monarch were in a similar crisis, and they were saved at the last minute by a cash injection of £165 Million from shareholder Greybull Capital. The main reason they were in trouble last year was because some of their key markets, Turkey and Tunisia, for example, had experienced a massive drop in visitors due to terrorism incidents.
Having secured the investment, the management refocused the company on Spain – Britain’s largest tourism market, but also the most hotly contested. So in the holiday market, Monarch were competing head to head with Thomson, Thomas Cook and the fast emerging Jet 2.
For the airline operation, a decision was also taken to move to a “low cost” model, stripping added value and reducing prices to compete with Easyjet and Ryanair. To some extent this was successful, as Monarch carried more passengers than ever over the last year, but at great cost to profitability.
At the root of all of this is what has become the British public’s obsession with “Cheap.” Too many businesses in the travel space are competing with price as their unique selling point, rather than value for money.
I don’t spend much time in the UK, but I have noticed when I am there that almost every advert, on television or in the newspapers, for whatever product or service, is focused on telling the public that it’s the cheapest on the market. Businesses in almost every sector seem to have fallen into this trap, and they are effectively educating consumers to always be looking for the lowest price, as opposed to the best value.
At the end of the day
The new kids on the holiday block are Jet 2. Why have they succeeded in this fiercely competitive space? By adding value – they were the first to offer 22KG suitcases as part of their packages, they remain unique in offering in-resort check-in. Where everyone else is stripping value from their offer to get to the lowest possible price, they are constantly looking for ways to add value.
And so far, it’s paying off for them. Would Monarch still be with us if they had gone down the same route? We’ll never know.
But is the industry due for a big shake up? Is there still a place for giant tour operators whose modus operandi is to push hotels to give them the lowest possible prices, and then pay them 90 days after the clients have stayed with them?
As a travel agent, we will continue to offer packages from the remaining tour operators to our clients. But a significant part of our business is now doing something we call “Dynamic packaging,” where we’ll find you the best flight from your nearest airport and deal directly with a hotel to get you the room you want, and liaise with the hotel on your behalf to make sure you are well looked after, we’ll organise your transfers or car hire with local companies and give you our personal tips on things to do and where to go during your stay.
That’s what I call adding value. And each business in the chain will earn a reasonable profit. Will you pay more? Possibly, although we’ll always get you the best price we can. But I can promise you you’ll have a much better experience.