vieweasyJet plc

Monarch’s sharp descent helps rival airliners to fly higher

The carrier went into administration in the early hours of this morning as intense competition and wafer-thin margins finally took their toll

monarch plane
The loss of Monarch bodes well for its rivals though as it takes capacity out of the market

Monarch’s sharp descent over the weekend might have left customers reeling, but its rivals are all flying higher this morning.

The airline was placed in administration at 4am this morning after last-ditch talks with aviation regulator on renewing its licence failed.

WATCH: Vultures swoop in on Monarch's carcass

Almost 1mln passengers affected

Almost 1mln passengers are thought to be affected, with over 100,000 stuck abroad.

Monarch swung to a £291mln loss in the year just gone from a profit of £27mln in 2015.

The poor performance came as the industry faces significant headwinds, with German carrier Air Berlin also forced to cease trading recently.

Terror attacks and price wars ravaging industry

Terror attacks in Tunisia and Egypt have deprived airlines of a sizeable chunk of their revenues and left them all competing on congested routes to France and Spain.

That has led to a price war which is eroding margins, while stagnant wage growth and a weak pound have hit demand in the UK as well.

It’s not just Monarch and Air Berlin that have faced issues, almost every airline has noted at one point or another the headwinds in the industry over the past few years.

One fewer carrier will ease some of the competition pressures and that was encouraging investors to pile into Monarch’s rivals this morning.

Easyjet PLC (LON:EZJ) was up 5.4% to £12.83, Wizz Air Holdings PLC (LON:WIZZ) gained 4.5% to £29.99, while Thomas Cook Group PLC (LON:TCG) added 1.3% to trade at 121.9p.

BA owner International Consolidated Airlines Group PLC (LON:IAG) (up 2% to 605.5p) and Ryanair PLC (LON:RYA) (up 2.9% to €16.74) also rose higher.

Monarch's failure takes heat off Ryanair

“The failure of Monarch is good news for rivals,” said ETX Capital analyst Neil Wilson.

“No doubt this takes the heat off Ryanair but it has wider implications. The third airline failure this year in Europe, after Alitalia and Air Berlin, is a symptom of over-capacity and overly-aggressive pricing.

READ: Ryanair Holdings reduces growth plans to “eliminate all risk” of future flight cancellations

“It means fewer seats to fill sector-wide – more than 6m in the case of Monarch. This should mean Ryanair and EasyJet can comfortably improve load factors, even if the reputation of the former has suffered of late. This should be positive for margins despite pricing pressures.

“There are now only really five big carriers operating in Europe: Ryanair, Lufthansa Group, International Airlines Group, Air France-KLM, and EasyJet.

“Many more mid-sized carriers are limping on thanks to cheap oil but further consolidation may be necessary. Ryanair is among the last standing – its reputation can take a few more knocks.”

Evidence of a more efficient sector

“The collapse of a rival is to the potential benefit of publicly-quoted rivals such as International Consolidated Airlines (the parent of BA, Aer Lingus and Iberia), easyJet, Wizz and Ryanair, as it could take capacity out of the market, or at least present them with a chance to acquire airport slots, routes and staff from a distressed seller,” said AJ Bell investment director Russ Mould.

“All of these players are currently in the black and look financially sound, to reflect how in some ways the airline industry has become a lot more efficient and better at managing its resources since the time Warren Buffett lost a packet on a shareholding in US Air.”

--Updates for share price and video link--

Quick facts: easyJet plc

Price: 663.4 GBX

Market: LSE
Market Cap: £2.9 billion

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