The wave of large mergers in Europe started with Air France and KLM in 2004, included Lufthansa's acquisitions of SWISS and Austrian, and ended with the 2011 combination of British Airways and Iberia to form IAG. Since then, consolidation has continued at a slower pace, led by mergers of smaller scale.
By comparison with North America, Europe's aviation market remains very fragmented. Europe's top seven airline groups control 55% of seats to/from/within Europe in summer 2018, compared with an 82% share for North America's top seven. Only mergers between Europe's biggest groups could match the seat share of North America's leading players.
More than a year ago, the European airline sector began to see early signs of impending turbulence. First, it was the bankruptcies of Air Berlin, Alitalia, and Monarch. Then, this year in quick succession, SkyWork, VLM, Cobalt Air, Small Planet Airlines Germany, and Primera Air went out of business. For the full article please click on https://centreforaviation.com/analysis/reports/airline-mergers-why-europe-needs-blue-sky-thinking-417376
Some 900 plus airlines currently file schedules with OAG -- in North America alone, there are around 97 airlines, and in Europe over 220 airlines. Such a range of suppliers in any market would be high, and in a capital-intensive industry such as aviation it is perhaps too many. Either by merger, failure or graceful strategic partnerships, it is likely that we will see further consolidation of airlines in both Europe and North America in the next few years. A big market share is ultimately beautiful for airlines because it reduces their network exposure, allows points of critical mass to be achieved and results in positive levels of return on investment (ROI), something that is much needed. Airlines with small market shares will always be niche, vulnerable markets increasingly open to more competition and regulatory ownership protection – previously a barrier to consolidation falling away in many parts of the world. Source: www.aviationpros.com/airports
While the situation is nowhere near the crisis that enveloped carriers in the United States a decade ago when they underwent a major consolidation, the option to consolidate for European airlines today has become not only necessary but also inevitable. Facing rising operating costs and labour shortages for pilots and mechanics, European carriers — including some of the larger ones — find themselves unable to generate sufficient profitability to invest, innovate, and grow at a rate that keeps pace with international rivals.
What does this complexity mean for the travel buyer?
Travel buyers cite stronger pricing power, reduced competition, reduced capacity and a weaker negotiation position as significant concerns.
Corporations with self-booking tools need to be clear on how alliances, JVs, marketing agreements, codeshares etc. show to their travellers / bookers and educate them where necessary as it becomes a more fragmented and complex booking journey.
Alliances can sometimes assist buyers when people wish to fly a route with limited competition. They can avoid one carrier on the codeshare/JV and book the other whilst taking advantage of loyalty program synergies and beyond contract value data and insights.
Suggested strategies for the buyer? Remember to use all airports in an area e.g. Baltimore for Washington & San Jose / Oakland for San Francisco to maximise alternatives. Be clear with your preferred airlines what the synergies are for your business and how they can support a seamless experience for travelers.
One thing is for sure, the ITM is sure further consolidation and M & A activity will continue in the years to come so it is important to understand the players, the joint ventures and how they can reduce the complexity for travel buyers.
Clearly this is no truer than during the current global pandemic. Airline survival during a time when both business and personal travel is at an all time low, is at the forefront of the aviation industry. We have seen further airline partnerships evolve in recent months and we can potentially expect this to continue in the months ahead.
Watch this space.
For further insight, the following articles are worthy of a read: