Europe’s airlines fly towards consolidation

New shake-up in the European airline industry
The squabble over the assets, routs and valuable airport slots of bankrupt Alitalia and insolvent Air Berlin heralds a new shake-up in the European airline industry, news agency AFP reports.
And if other airlines can’t cut costs, they may end up the same way, industry analysts warn.
Alitalia and Air Berlin are on the brink after key investor Etihad gave up after years of trying to keep them afloat. Both may now be eaten up whole or carved up by rivals. Then more changes in the industry are likely.
“The sector will continue to consolidate, because the business models are in the process of changing,” says Stephane Albernhe, managing partner at Archery Consulting.
“It is an underlying trend in Europe, and in the United States where four ‘consolidators’ are in the lead: American, Delta, United, and low-cost Southwest.”
Jerome Bouchard at Oliver Wyman thinks that soon “there will be an oligopoly centred round Lufthansa, IAG and Air France-KLM”.
Low-cost carriers such as Ryanair, easyJet and Norwegian continue to grow. Ryanair has already eclipsed Alitalia as the largest operator in Italy.
“Etihad’s exit from Alitalia’s capital will contribute to the acceleration of consolidation,” Albernhe says. “Alitalia will very likely join, either in whole or in part, Air France-KLM, Lufthansa, IAG, or even easyJet or Ryanair.”
With profit margins already tight and yields declining, airlines will have to cut their high fixed costs on planes, fuel and labour. Wages are a major drag for older carriers; pilots’ salaries at Air France are 20-25% higher than those at easyJet, insiders say. Also alliances may get tighter, with Air France-KLM, for example, recently allowing SkyTeam partners Delta and China Eastern to take stakes in its equity capital.
AFP

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