Airline insolvencies: a review

Following the high profile reports of Monarch entering administration in October 2017, there have been a number of key developments of interest to both officeholders and consumers.

Most recently, on 22 November 2017 the Court of Appeal confirmed (in Monarch Airlines Limited v Airport Coordination Limited [2017] EWCA Civ 1892) that Monarch retained the right to its flight slots at Luton and Gatwick airports notwithstanding the cessation of its air transport services and the revocation of its operating licence by the Civil Aviation Authority. By enabling Monarch to keep its allocated slots for the summer 2018 season (for which Monarch had applied prior to its entry into administration), the administrators were able to exchange slots at peak times for cheaper slots with other airlines, in exchange for payments for the benefit of the administration estate.

Monarch’s entry into administration has now led to the Government’s announcement of a review into airline and travel company failures. This follows the administration of lowcostholidays last year and other aircraft carriers such as Air Berlin entering insolvency in recent months. As we reported in October, when a travel company enters administration, the protection available to consumers will depend upon the type of booking and how the booking was made (with credit cards generally offering the best protection).  In particular, passengers may not be aware that flight-only bookings are not covered by the ATOL protection scheme. However, of the 85,000 passengers repatriated when Monarch’s flights were grounded (at a cost of c.£60m), it is reported that only 5% were actually ATOL-protected.

In the Autumn budget, the Government confirmed its intention to launch a review into “consumer protection in the event of an airline or travel company failure” drawing on the lessons of the administration of Monarch. It is proposed that this review will also consider how best to enable airlines to wind down their business in an orderly fashion so that they can conduct and finance repatriations without impacting the public purse. In doing so, the Government could learn some lessons from the wind down of insolvent Air Berlin’s operations, which was allowed to continue flights with the support of a bridging loan from the German Government whilst buyers were sought for its assets.