UK leisure carrier Monarch Airlines' prospects have been a matter of concern since the operator was forced to negotiate additional funding from its main shareholder, Greybull Capital, a year ago.

The airline's auditor had underlined this concern at the beginning of August, in its statement on Monarch Group's latest full-year accounts.

Monarch's outlook had depended on several "critical assumptions", auditor Deloitte had stated, and the resulting uncertainty could cast "significant doubt" over the company's ability to continue operating.

The company had already previously negotiated a funding injection a year ago, when Monarch had been forced to seek a temporary extension to its air travel organiser's licence – known as ATOL – which protects consumers should the business run into problems.

Monarch opted to pursue a reduction in its ATOL scope, by dropping the ATOL protection from flight-only seat sales in November last year.

The airline sought to achieve a "marked increase" in the penetration of the number of seats sold through its package holiday operations – one of the assumptions on which its business forecasts depended.

But Monarch has also been facing stronger competition in the holiday sector, with its traditional markets experiencing a surge of additional capacity as rival carriers turn away from resorts which have been affected by political unrest or armed attacks.

Incidents such as the attacks in Tunisia and Turkey, and the suspension of services to the Egyptian resort of Sharm el-Sheikh, have spurred operators to focus on other destinations – particularly those in Spain and Portugal, where Monarch has typically concentrated its operations.

The resulting heavy deployment of capacity had a detrimental effect on Monarch's yields, at a time when the airline was also having to deal with the UK currency decline following the referendum on European Union membership.

In its last financial year the airline suffered a near-70% cut in its operating profit, to £13.2 million, as revenues fell by 15%.

The poor economic environment – as well as a planned fleet renewal – also prompted a large write-down and lease provision on the airline's aircraft, generating exceptional losses of £304 million.

Monarch has been expanding its network to include various new routes, and it had forecast that the influx of capacity on its traditional links would ease next year.

But shareholder Greybull Capital, which had provided £165 million in new funding to the carrier a year ago, says it has "not been able to turn around" the company.

Greybull says it is supporting the UK Civil Aviation Authority and administrator KPMG in order to "mitigate" the impact of the situation on customers and staff.

Source: Cirium Dashboard