The War Years found little work for the Manx Electric Railway, with passengers dropping significantly, and deficits rising each year. The original Laxey Refreshment Room was destroyed by fire in 1917 and was not rebuilt. It was a great relief that the 1919 season saw the holidaymakers return in their thousands, with the number gradually increasing throughout the 1920s.
Disaster was to befell the M.E.R in April 1930 with a large fire at Laxey Car Shed, destroying four Cars (Nos. 3, 4, 8 and 24), seven Trailers, (Nos. 34, 35, 38, 39, 40, 41 and 44), three Tower Wagons and an Open Wagon (believed to be No.6). It was thought that the cause was one of the cars containing a burning cigarette. The insurance allowed the Car Shed to be rebuilt, and three new Trailers to be ordered from English Electric as replacements. Alongside this in September 1930, the entire Laxey area flooded in a storm, causing the M.E.R Laxey Power Station’s weir to divert the course of the river onto the Glen Road, causing severe damage to the village. The resulting lawsuits and cases against the M.E.R nearly crippled the company financially.
Passenger figures continued to rise throughout the latter half of the 1930s, allowing the previous debts to be paid off. Another setback to the M.E.R was the destruction by fire of the Dhoon Glen Hotel in 1932, it not being rebuilt. Problems were soon amassing through with war clouds gathering over Europe in August 1939, heralding a fall in visitors..