What Led To Air Mauritius Entering Administration?

The news of Air Mauritius being placed into administration dropped like a bomb two days ago. Though the eventual collapse of the airline can easily be blamed on the COVID-19 crisis, as it had been stated, Air Mauritius has been facing financial troubles way before the coronavirus outbreak.

Air Mauritius is in administration, but what went wrong? Photo: Olivier CABARET via Wikimedia

With all its international and domestic flights grounded till 15th May due to the pandemic, the already struggling airline had no alternative but to enter voluntary administration. Unfortunately, the coronavirus crisis led to the complete erosion of the company’s revenues, according to the board of directors of Air Mauritius.

Unprecedented crisis

In January 2020, Air Mauritius management had set up a Transformation Steering Committee to address the financial difficulties of the business model. Though the company claimed progress was made, the inevitable decline continued. Air Mauritius has monthly fixed costs of over $20m/Rs800m MUR, which includes the salaries of around 3,000 employees and the leasing costs of Airbus A350-900 and A330-900neo.

The uncertainty about when international traffic will resume only resulted in voluntary administration of Air Mauritius so that the company can buy some time to restructure.

Air Mauritius B767-23BER 3B-NAK
The loss-making airline has bought a little time. Photo: Bob Adams via Flickr

Fight for survival for years

Just last year, Air Mauritius had incurred losses of $25m/Rs998.2m MUR. Previous years were not any better, with meager profits or even more significant losses. It was clear that the company had trouble making money. Surprisingly, even during the high season in Mauritius (October to December), losses have accumulated while travel and tourism operators make the most profits during the same period.

Increasing competition and rising costs of fuels were pointed out as reasons for the company’s low profits. Even at the beginning of 2019, Air Mauritius already expected the 4th quarter of the year to be challenging. Experts were asking for a business model to get the company back on track; nothing much was done. Significant changes would include general operations and staffing to be able to trim down losses.

Air Mauritius' Airbus A340
Even in the high season, the airline made a loss. Photo: Venkat Mangudi via Flickr

Bad management

Air Mauritius has been very badly managed since the early 2000s. Even if frequent changes have been seen at top-level management in recent years, the company’s board has remained intact, and the government has remained the majority shareholder (42.5%). Most key strategic decisions, plans and business models are approved by the company’s board, which is too widely backed by politics.

For the past 20 years or so, no government has been able to strike the right balance in the company with its role as shareholder. With various airlines like Etihad or Qatar Airways approaching Air Mauritius to offer help, Air Mauritius chose Emirates for interline agreements. This was not considered to be the best decision.

Some argue that Air Mauritius should have followed Air Seychelles’ move to partner with Etihad. This partnership has proved fruitful for the airline and did not stop Air Seychelles from taking delivery of its new Airbus A320neo despite the current crisis.

Air Mauritius A330-900NEO tail
Has poor management contributed to the demise of Air Mauritius? Photo: BreakingTravelNews via Flickr

Possible solutions

Various experts from Mauritius have come forward to offer possible solutions while Air Mauritius is in administration. While it is not a time to play the blame game, many are blaming the government of Mauritius for not acting. While the government is helping hundreds of companies on the island to avoid a rise in unemployment, its inaction towards Air Mauritius will lead to inevitable job losses.

According to Rama Sithanen, the ex-finance minister of Mauritius, Air Mauritius is the most affected company during the coronavirus crisis. He proposed the following solutions:

  1. A new structure for the company.
  2. Capitalizing with the current shareholders. Which are:
What Led To Air Mauritius Entering Administration?
Air Mauritius shareholders as of March 2019. Photo: Air Mauritius
  1. Selling the company. Which he says will be done cheaply and not the best solution.
  2. Demerge to avoid subsidiary companies of Air Mauritius to be affected.

Air Mauritius has some dark times ahead, but if proper strategies are implemented, Mauritius should be able to keep its national airline alive.

What do you think about Air Mauritius entering voluntary administration? Do you think Air Mauritius will be able to get out of this situation without major losses? Share your thoughts in the comments.