Monarch’s Flights Will Soon Lose Protection From UK Licensing Scheme

Flights provided by UK airline Monarch will no longer be covered by the Civil Aviation Authority’s licensing scheme from the start of 2017.

The change follows a new $203 million (£165 million) investment from owners Greybull Capital, which helped avert a financial collapse, and is a significant vote of confidence in the Luton-based firm.

Monarch had been in the highly-unusual situation of having its non-holiday offering included in the Air Travel Organizer’s License (ATOL) scheme.

Other scheduled airlines such as EasyJet and British Airways are not required to obtain an ATOL for their flight-only sales.

The likely reason for Monarch’s inclusion was a struggle over who would be liable for refunds in the event of it becoming insolvent, which was obviously a real concern given that it made a $52 million (£42 million) loss in 2014.

Who Is Doing the Protecting?

The UK’s rules on financial protection in the travel industry are complex but broadly speaking if a company is selling its own holidays then it is required to obtain an ATOL.

If that company goes bust refunds and repatriations come from the CAA run Air Travel Trust Fund (ATTF), which is paid for by a levy of $3 (£2.50) on each passenger booking.

Flights are ordinarily a different matter.

In the event of an airline going out of business, providing the flights were paid for using a credit card and were over $123 (£100), then instead of contacting the CAA consumers would turn to the credit card companies (and ultimately what are known as merchant acquirers) who would deal with the refunds.

How the ATOL Scheme Works

Once a year, either at the end of April or September, firms will apply to renew their ATOL, with the CAA running the rule over each submission.

The CAA needs to make sure that each business is viable as a failure can cost millions of pounds to deal with in refunds and repatriations.

Years of economic stability in the UK have meant there have been relatively few expensive insolvencies and the last set of available accounts for the ATTF released in June show a surplus of $171 million (£139 million).

That sounds like a lot of money but in all likelihood it wouldn’t have been able to cover the collapse of a company like Monarch. The rest would have been recovered from an insurance policy, which has an upper limit of $554 million (£450 million).

The CAA’s exposure to Monarch’s flight-only passengers (as well as those who booked a package holiday and travelled on different ATOLs) was probably the reason why a number of charter flights were organized for the last weekend in September, in the event of its collapse.

Monarch’s new $203 million (£165 million) investment seems to have been enough to satisfy both the CAA and the merchant acquirers because from January 01 Monarch flights will no longer be part of the ATOL scheme.

“As part of our ATOL re-license agreement and as a direct result of our recent significant investment, we will no longer need to ATOL protect our flight only sales. From 01 January 2017 we will only issue ATOL certificates for package holidays, with airline flight sales handled in the same way as all other UK scheduled airlines,” a Monarch spokesperson told Skift.

According to the regulator’s figures, First Aviation Ltd, which acted as an agent for Monarch flights, had been permitted to carry just over 2.2 million passengers in the year to the end of September. But for 2016-17 this number drops by 60 percent to 884,954 passengers.

(Monarch said the continued licensing of more than 800,000 passengers was to cover pre-existing bookings.)

While the extra funds are undoubtedly good news for company and those travelling with it, the bad publicity it has suffered in recent weeks will likely have had a negative impact.

Furthermore, overcapacity in the European aviation market and rising fuel prices will make things a lot tougher next year for all carrier, not just Monarch.

Speaking last week, Alex Cruz the CEO of British Airways said he had mixed feelings about its rehabilitation.

While he was happy for the employees he said that he was sad that “there was probably an opportunity for some further rationalization in the market and it hasn’t happened.”