Skift Take

Post-Brexit, Britons likely were avoiding booking travel for a couple of reasons. One is the devaluation of the pound, which hasn't improved much. But the other was fear of the unknown. Now that the fear has subsided, they're traveling more, and budget airlines like Monarch are the beneficiaries.

A surge in demand for Mediterranean holidays suggests Britons are coming to terms with a weaker pound and the threat of terrorist attacks, according to Monarch Airlines Ltd., the U.K.’s second-biggest leisure carrier.

Vacation bookings for summer 2017 are up 40 percent, Monarch reported Friday. While the increase may have been enhanced by lower sales during this year’s peak season, when the Luton, England-based company was struggling to secure new financing, the improvement stems mainly from “external” factors, Chief Executive Officer Andrew Swaffield said on a media call.

“Britons tend to be quite resilient,” he said. “Some people changed their plans in 2016 due to the combination of terrorism and the exchange-rate fluctuation, but they’re bouncing back in 2017. I think they’re getting used to it.”

Demand for package holidays that bundle flights, transfers, accommodation and meals and offer greater certainty over price has gained most, Monarch said, though flight-only bookings are also up 10 percent. That reflects an increase in the number of people using services such as Airbnb Inc. to source beds independently in markets such as Spain, where a perceived minimal terrorist threat has led to a shortage of traditional rooms, Swaffield said.

Portugal and Italy are also seeing a surge in demand. The jump in volumes should propel occupancy levels on Monarch jets toward 90 percent, though yields may decline 10 percent with fares under pressure from a general glut in European airline capacity, the CEO said.

Earnings Forecast

Sterling’s weakness will also act as a drag on profit, with 85 percent of Monarch’s revenue generated in the U.K. currency while its fuel and holiday resort costs are paid in dollars and euros. Earnings before interest, tax, depreciation and amortization for the 12 months through Oct. 31, 2017, are hence likely to match the 48 million pounds ($60 million) estimated for the last fiscal year, or be a couple of million pounds higher, Swaffield said.

The 2016 figure, which is in line with estimates, represents a 35 percent decline from a year earlier. While the terror threat and uncertainty following Britain’s vote to quit the European Union impacted earnings, Monarch also faced a possible grounding by regulators until majority shareholder Greybull Capital LLP announced a 165 million-pound capital injection.

The refinancing has also paved the way for Monarch to begin taking delivery of a new fleet of 30 Boeing Co. 737 Max 8 jetliners. While the first plane is due in March 2018, Swaffield said it could come a few weeks early since the manufacturer has reported good progress with the upgraded narrow-body model. The airline has options to take a further 15 planes.

Monarch is hedged on fuel on currencies through the end of next summer and has a “reasonable amount” of hedging for next winter so that the impact of higher oil prices should initially be limited.

©2016 Bloomberg L.P.

This article was written by Christopher Jasper from Bloomberg and was legally licensed through the NewsCred publisher network.

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Tags: airlines, brexit, Monarch Airlines

Photo Credit: Monarch Airlines, a UK-leisure carrier, says business is improving. Monarch Airlines