Monday morning and staff, families and holidaymakers were arriving at work and heading to airports to catch flights - all blissfully unaware. The morning announcement reiterated from the early hours sunk in as workers were informed they were now redundant, left to call their families to break the news, and holidaymakers were stranded abroad.
To assess the general sentiment in Luton, THE MANCHESTER MAGAZINE travelled down to Monarch HQ as well as the local airport to speak to locals, airline staff and holidaymakers, searching for their thoughts on the matter and looking to hear the press debrief. What follows is a little of that sentiment, expounded across an insight into current market trends to emphasise and shed light on the dialectical findings of ailing British industry.
Manchester Conservative Party Conference
The twentieth anniversary of the Bank of England’s independence saw Theresa May grace the podium to deliver a warm and loving defence of the free-market economic regime that has come to dominate much of the global marketplace. As she spoke elatedly of the triumphant success of the market economy’s unique ability to lead us from our dark, dismal lives into the comforting warm bosom of capitalist success, one could only imagine the feeling of defeat that pulsed through the hearts of those crying out for market intervention to salvage the overnight meltdown of Monarch Airlines and the catastrophe that ensued.
The speech could be seen to be a marked shift away from her prior rhetorical offerings as the contented centrist. May previously espoused the need for regulation and sincerity in a market dominated by the cult of “selfish individualism”, and remained certain that at least some market corrections would be necessary to curb the rising inequality that historically follows a deregulated economy. Oddly, her appearance at the Bank of England was lacking in advocacy of anything other than non-intervention.
Her defiance to Jeremy Corbyn’s strictly interventionist approach to economic policy comes as no great surprise. One can too, if politically able, come to accept the about U-turn of her economic rhetoric given the current attacks on free-market economics by the left. The irony, of course, can be found in the precarious timing of her defiance to interventionist opposition – with Monday’s collapse of Monarch Airlines resulting in one of the greatest taxpayer-funded repatriation operations of modern times.
A condensed market's race to the bottom
Monarch Airlines' ability to deliver competitive prices to passengers was under pressure long before this week's headlines. A turbulent few years for the airline saw large redundancy packages and pay cuts handed to workers in 2014 to salvage operations. Even since trimming the proverbial fat, the crippled post-Brexit-referendum sterling had weakened the airline’s ability to purchase fuel and operate efficiently enough to remain competitive. The great looming unknown that is Brexit uncertainty has undoubtedly played a significant role in the collapse of Monarch; especially so in what concerns the deterrence of engagement with Monarch by both the consumers and the investors that may have saved the struggling airline.
The great looming unknown that is Brexit uncertainty has undoubtedly played a significant role in the collapse of Monarch.
Monarch’s collapse comes after a series of airline failures and problems that have, for the most part, been heavily prophesied by industry regulators. Intense market saturation and a race to the bottom to win consumer preference has seen many airlines push down prices far below sustainable operating levels.
Ryanair’s withholding of annual leave for pilots can be attributed to the airline giant’s attempts to stay fiercely competitive and deliver its service to consumers at the cost of its workers – with pilots scrambling for their rights to unionise and to take affirmative action against their employer. This has resulted in the cancellation of flights for over 400,000 passengers. Luckily for Ryanair, their accumulated financial buffers and capital holdings should prove adequate to starve off any short-term liquidity problems that may arise from their correcting of the backlog. Unfortunately for airlines like Monarch that do not have the luxury of Ryanair’s scale, the exogenous Brexit shock to profits, and failure to remain intensely competitive, has left it entering forced administration.
There is an argument to be made regarding the ecological unsustainability of such a model of competition. This becomes poignant in the case of a carbon-intensive industry like air travel. Where markets are left to saturate so potently that prices are driven down to the point where air travel becomes the cheapest way to get from Southampton to Heathrow - albeit via Tuscany, Lapland and Reykjavik - the question must be asked as to whether environmental costs (typically labelled as externalities by economists) outweigh the financial benefits. At what point does such vast quantities of outsourced degradation become recognised as a viable reason to intervene in market competition? A society in which noise, air and environmental pollution and degradation are not effectively internalised by the polluting agent, via incentive alignment dictated by a regulatory body, or offset by initiatives of sustainability, greater efficiencies or transition to less damaging fuels; questions need to be asked of our priorities.
Further, unemployment because of market competition is one of the many issues that May’s dictation of free-market successes failed to address. While EasyJet has expressed a vague interest for some of Monarch’s landing slots at Heathrow, all-in-all the company is looking to be unvalued by many competitors or external investors as simply excess capacity within the industry. And while Monarch is hardly the jewel of the British economy or the flagship carrier like British Airways, it is still a valuable source of income for thousands of workers who may now be unable to pay their mortgage, meet their short-term credit obligations in the structural transitory window of unemployment.
The rise and fall of a zombie economy
Advocates of more laissez-faire economic policy implementation would oppose any government intervention in smoothing out market fluctuations such as those which have caused the airline to cease operations. It is neither impossible nor historically rare to see the government offer a guiding hand in the process of market consolidation. Yet, the support by banks and government to allow zombie companies in the UK economy to idle on may well point to features of low productivity and economic growth in recent years.
Zombie companies are those that struggle to raise enough cash to service their debt. This survival merely offsets judgement day when interest rates start to rise. A firm that can limp along, and take up resources in the economy but not invest.
The matter of resource devotion to ailing companies is a shadow that looms over the British economy. For instance, liquidity from banks is tied up in struggling companies and not available for more vibrant small businesses or entrepreneurs. The spectre of forbearance - banks giving breathing space to (risky) borrowers - instead of writing down losses on loans and making provisions for similar collapses to Monarch, simply aren’t taking place, and ultimately, serve only to prolong the inevitable.
Extending credit terms to companies in this way is not necessarily a terrible thing, providing it isn't choking off new lending and new investment. May’s indication that intense free-market competition paves the way for sustainable and equitable development seems seldom met by any sufficient policies that ensure the financial security of those workers who bear the real weight of market fluctuations in their resulting transitory unemployment when zombie companies collapse. When one happens now and again due to an exogenous shock, they may bounce back. However, when an internal policy decision, such as a hike in interest rates occurs and many companies start to fold; the distinct lack of policy cushioning by the Conservative government will unfold.
Of course, branding all principles that underpin a market economy as intrinsically evil would be as short-sighted and ill-informed as inferring that any form of state intervention is a categorically ineffective and prehistoric policy choice. While, in theory, both socialist economic plans and market-based solutions have the potential to ensure fair and equitable growth; in practice neither ideology functions in the way that theory would assume under laboratory conditions.
While EasyJet has expressed a vague interest for some of Monarch’s landing slots at Heathrow, all-in-all the company is looking to be unvalued by many competitors or external investors as simply excess capacity within the industry.
To polarise the ideologies is to remain rooted in faction-like cultism that hinders progression and does little to help those left behind by neoliberal policy choices. It does not take an economist to gauge the value of at least some government intervention – even if only to ensure those few thousand workers that suddenly found themselves unemployed will have food on their table next month and their homes will not be foreclosed upon. Masoud, a Luton resident, told THE MANCHESTER MAGAZINE: “It will ultimately be a blight on the community. Aviation is one of the main employers in and around Luton. Without the additional work capacity offered by Monarch, who knows what the families and airline staff will do now.”
Theresa May has become somewhat of a parody of herself. While churning out centrist rhetoric that attempts to value greater public spending and public investment, May simultaneously takes her place at the central bank to publicly defend deregulation and forgo the idea of government intervention entirely.
A long way home
On Monday, what few airline staff that remained in work by 10 o'clock were stilling coming to terms with their fates. Aminah, an airline technician trainee, told THE MANCHESTER MAGAZINE: “I came into work this morning aware the airline had been struggling to finance training contracts and the centre over the past year. However, we were told it was just restructuring to deal with competitors also deploying low-brow market share grabbing tactics. Little did I know that my manager would inform me with tears in her eyes we were now all out of work. I have two children at home and only meagre savings to support them. Why has the government not done more to cushion this blow?”
The repatriation operation to bring home those 100,000 holidaymakers stranded by the collapse of Monarch is just another managerial public expense in a chain of broken market fluctuations. In the vein of bank bailouts during the financial crash, the public pocket is responsible for ensuring the correction of market fluctuations that may never have occurred had deep deregulation never been administered as a means of boosting economic growth. Mounting constraints on public expenditure see public services driven to the point of collapse – so further siphoning funds into broken markets that on aggregate do very little for the average worker seems overbearingly reductive.
Monarch’s collapse was not the first example of a company failing to remain competitive, nor was it unforeseen, and nor will it be the last. Free-market advocates may brand the failure of weaker companies as both fair game and as a necessary component of ensuring market efficiency. John Moulton, investor, believes ousting weaker business models is a key aspect to restore balance growth and entrepreneurial culture to the UK economy. But in taking the macro perspective, it is easy to glaze over the human-centric consequences allowing capitalism to progress without constraint. We can only hope that May’s next rhetorical pivot results in a stance that would truly attempt to build a better Britain. TMM