Monarch has been granted a 24-hour extension to its tour operator’s licence.
Britain’s fifth-biggest airline had a deadline of midnight on Saturday before its Air Travel Organiser’s Licence (ATOL) expired.
It follows a report by Sky’s City Editor Mark Kleinman that Monarch’s future was hanging by a thread as the company held emergency talks with regulators.
This is the third time Monarch has been handed a temporary extension in four years, and sources had said that the operator’s travel subsidiary was likely to be placed into administration within days if a further extension was not secured.
It would have left 100,000 Monarch customers facing uncertainty about their journey back to the UK.
The Civil Aviation Authority said: “We can confirm that ATOL protection will remain available for eligible holiday bookings made with Monarch on Sunday.”
The extension means holidaymakers can purchase ATOL-protected trips from Monarch on Sunday – covering them on whatever date in the future their trip takes place.
The CAA has said it will provide daily updates with regards to the protection that is available to Monarch customers.
Analysts have pointed out that it is unclear whether the temporary extension will do anything other than act as a stay of execution given the uncertainty about Monarch’s finances.
More than 2,500 people work for Monarch, with about 800 employed by its engineering business – a division which is likely to be able to continue trading under another owner.
The company is expected to fly more than six million passengers this year from airports including London Gatwick, Birmingham, Leeds and Manchester, as well as its base at Luton Airport.
Within the last week, Monarch has fielded bids for parts of its struggling short-haul business from rivals including easyJet and WizzAir as it has sought to extricate itself from a bitter industry price war.
Last year, Monarch required a 12-day extension before its ATOL was renewed by the CAA, with controlling shareholder Greybull Capital orchestrating a £165m rescue package.
Boeing also contributed to that deal by allowing Monarch to enter into sale-and-leaseback arrangements for a fleet of new planes, which are expected to come into service from next spring.
The turmoil in the aviation industry has caused a brutal downturn in Monarch’s performance, with currency weakness and a string of terrorist attacks in Europe contributing to its troubles.
Insiders said that Monarch still had tens of millions of pounds on its balance sheet, which could mean that the CAA would allow it to be wound down solvently, by flying customers home from their destinations but not taking them abroad from the UK.
If it does collapse, Monarch’s assets would be targeted by rivals such as easyJet, although the shares of the company would be worthless.
The part of Monarch’s business which requires an ATOL represents only about 5% of the group’s revenues, but sources confirmed this weekend that the likely loss of confidence among airport and payment partners would trigger the downfall of the wider business.
Monarch’s most recent financial statements revealed accounting losses for the year to last October of £317m, although much of this related to aircraft leasing contracts.
Monarch’s chief executive, Andrew Swaffield, reacted angrily last month to a suggestion made by Michael O’Leary, Ryanair’s combative boss, that the British airline would struggle to make it through the winter.