After news appeared last week that Monarch Airlines was going bust , the European air-travel market was thrown for a loop. Reuters reports that:
The collapse of airlines gives rivals a chance to snap up planes, prized airport slots and much-needed pilots. It takes airplane seats out of the market, allowing airlines still flying to nudge prices higher and lift some of the pressure on yields that has plagued the industry for several years.
These aforementioned rivals include names such as Lufthansa and Air France-KLM, who make up 49% of the short haul flying traffic in Europe. The fear is that with smaller carriers failing, they will plug the gap. Ryanair CEO Michael O’Leary even went so far as to say that “Europe will consolidate in the same way as the North American market has.”
So why does any of this matter to the investor? Well for starters if you owned share in Monarch then you are likely in a tough spot to begin with. However, investors who are on the periphery and invest in the manufacturers rather than the carriers could be in trouble too.
Reuters also reports that back in 2016 Boeing bailed out Monarch to the tune of $100 million. Consequentially, “The 48-year-old airline had said that the investment would fund the replacement of its Airbus jets with more fuel-efficient Boeing 737 MAX-8 aircraft between 2018 and 2021.”
The arrangement only had a year to be carried out but was likely an effort on Boeing’s part to secure more sales with the added leverage of their contribution. Now that the company has gone bust and their aircraft can be sold off to the major airlines, the American aerospace giant will likely find less companies in the market for their planes. The threat of a developing aftermarket may threaten their business in Europe until these cheaper, used models are sold out.
Investors should keep an eye on Boeing and the European airlines going forward. The entire air-travel landscape is changing and it could mean big changes in the markets.
To read Reuters’ article on Boeing’s bailout of Monarch, click here.
To read Reuters’ article on the failing small airline industry in Europe, click here.
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