Tuesday, 3 October 2017

Monarch and the monopoly value of landing slots.

From City AM:

Shares in some of Monarch's airline rivals jumped this morning after the news that Britain's fifth biggest carrier had ceased trading.

Easyjet, which was reported to be one of a number of parties in talks with Monarch to save the airline, led the way and was this morning's biggest FTSE 100 gainer. Shares were up almost five per cent by lunchtime. Wizz Air was up almost four per cent and was quick to offer Monarch customers so-called "Rescue Fares" to help people stranded in Tel Aviv get back to the UK. Ryanair shares rose 2.64 per cent while Flybe was up 2.2 per cent and British Airways owner IAG was up over two per cent.

According to another article, the increase in value of shares in the other airlines was £500 million (ironically, a similar amount to what Monarch's last owners lost).

Why would this happen? Woolworth's, MFI and HMV went *pop* ten years ago, because retail generally was doing badly (credit crunch and internet competition) and they were doing worst. Did shares in other retailers jump? No. They all had the wolf at the door.

The answer is simple. From The Birmingham Mail:

Rivals have begun circling the carcass of collapsed airline Monarch in the hope of bagging its landing slots as the firm's administrator prepares to carve up its assets.

The likes of easyJet, Wizz Air, Norwegian Air Shuttle and British Airways owner IAG are understood to be mulling moves for the carrier's slots, which span Manchester, Gatwick, Birmingham, Luton and Leeds-Bradford airports, according to people familiar with the matter.

Robin Byde, transport analyst at Cantor Fitzgerald, said that Monarch's assets would be attractive to easyJet in particular. "Monarch assets may enable easyJet to increase frequencies on common routes, gain more attractive year-round and seasonal slots, and generally take market share. On fleets, synergies could be attractive as Monarch currently operates 34 Airbus A320-family aircraft which are compatible with easyJet's fleet."

The allocation of landing slots is murky, historically, airlines got them "for free" on a use-it or lose-it basis.

You can sell them on provided you've actually used them 80% of the time over the past X months, so the liquidators of Monarch only have a short period to sell them before the slots all forfeited. So there's half a billion quids' worth of mini-monopoly slots now to be sold cheap in a fire sale or given away "for free" by the regulators (with a corresponding number of cheap second hand aircraft), hence the increase in the share price of its competitors.


James Higham said...

You can just smell the high excitement among the rivals but the regulator will want to cash in too.

Lola said...

You could interpret your strap line as "of course 'The Monarch' has the monopoly of landing slots". The question the is, how can she maximise the revenue from them.

Mark Wadsworth said...

JH,yes, but to whom dies the value of the airspace and landing slots belong?

L, nice one.