August 18, 2019

August 16, 2019

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Let’s fly away…..

In the holiday season many of us jet-set to foreign shores – but do we ever think  about how we might get home if our budget airline goes bust or are we just hunting for the best deals to make the pound stretch further?

The last decade has seen a number of airlines collapse or be swallowed up by competitors:

Airline Ceased operation Reason
Monarch Airlines 2017 Administration
Air Berlin 2017 Administration
British Midland International (including BMIbaby) 2012 Acquired by IAG and intergrated into British Airways
Flyglobespan 2009 Administration into liquidation
Zoom Airlines 2008 Administration into liquidation
XL Airways UK 2008 Administration into liquidation
Silverjet 2008 Administration into liquidation
GB Airways 2008 Acquired by Easyjet

Following the collapse of Monarch last year, over 110,000 passengers were stranded abroad and the Government launched an operation to replace the flying programme for two weeks to repatriate customers, at a cost of approximately £60 million. At around the same time the German government was mounting its own programme to keep Air Berlin flying to avoid similar impacts for its passengers. Following these events, the Government issued a consultation paper on airline insolvency and the Airline Insolvency Review Interim Report was published on 12 July 2018 (to read the full report please click here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/724883/airline-insolvency-review-interim.pdf.).

The review was established to determine the extent to which it is appropriate to protect passengers from the impact of future airline insolvencies and how to minimise the impact on the taxpayer.

The review details that the airline industry is one that has seen ‘considerable change over the last few decades as regulatory reform and liberalisation has increased competition and reduced prices’. It estimates that the risk of further airline failure in the UK market remains around 25% in the next 15 years.

The UK aviation market is concentrated in the top 3 airlines (EasyJet, British Airways and Ryanair) with the rest of the market comprising a number of smaller airlines. However, even the major airlines have hit the press recently as they have been significantly affected by the recent air traffic controller strikes. EasyJet have estimated that the strikes have cost the airline £25million and accordingly they will be lodging a complaint with the European Commission, following similar action being taken by IAG (owner of British Airways) and Ryanair.

The recent air strikes, together with the unusually hot British summer, are likely to have had an effect on demand for ‘last minute’ bookings. Despite this, it seems that EasyJet in particular still have an optimistic outlook. It was reported that the airline has raised its full year profit outlook to between £550 million to £590 million due to the strong demand for seats. Such demand is in part attributable to EasyJet taking over some of Air Berlin’s services following its collapse last year, however, it still demonstrates the demand for a cheap getaway/cheap business travel.

The advice to passengers is still to travel but not to “have your head in the clouds”. Whether you are protected on your holiday mainly depends how the travel is booked. In general, purchases of accommodation and flights result in the creation of a ‘package holiday’ which in the UK is subject to ATOL protection. Other protections can be dependent on the method of payment used for your travel services or the terms of your travel insurance. If booked on a credit card in the UK, usually the card company is jointly liable for the provision of services. Equally, some travel insurance policies include supplier failure cover, but not all do. Whilst airline insolvency is relatively rare, neither the passenger nor the government/taxpayer want to be left footing the bills if an airline does “fail to take-off”.

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Jennifer Jones, Squire Patton Boggs, UK Insolvency litigation Lawyer, Corporate Restructuring Attorney
Associate

Jennifer Jones is an associate in the Restructuring & Insolvency Practice Group in our Leeds office. Jennifer provides contentious and non-contentious insolvency advice to banks, insolvency practitioners, companies and creditors.

In particular, Jennifer is experienced in non-contentious insolvency work including security reviews for banks and undertaking a variety of work for Law of Property Act receivers and administrators. 

Jennifer is involved with a number of programmes run at local schools for the Business in...

44 113 284 7175
John Alderton, Squire PB, Insolvency and Restructuring, Business Lawyer
Partner

John Alderton is the managing partner of our Leeds office. His particular expertise covers restructuring, reorganisation and business support, lender security reviews and enhancement, as well as contentious and non-contentious insolvency and cross-border issues.

John advises banks and other financiers, insolvency practitioners and other insolvency professionals, directors and management teams, as well as creditors, on all issues arising in stressed and distressed scenarios both within the UK and cross-border.

Chambers UK describes John as “practical and pragmatic”.  Commentators say he “focuses on the end result”. The Legal 500 UK says John is “Amongst the most commercial insolvency lawyers in Leeds”.

John is listed in the 2013 edition of Chambers UK as a leading individual for restructuring and insolvency.

John is a fellow of the Association of Business Recovery Professionals.

44 113 284 7026