Airline consolidation in Europe: worrying times for the industry
While consolidation looks like a complex and long process that two or more companies undertake for one reason or another, at the end of the day, the term is fairly simple to explain: two or more business entities are combining forces either to improve their position in the market or grow quickly when it is hard to do so organically. However, the consequences of consolidation, especially within aviation, are much more complex than the term itself.
In aviation, consolidated airlines are able to grow fast and in markets where potentially they could not enter organically or would risk failing in the process of attempting to do so. The fast growth part is crucial here, as nowadays acquiring aircraft or slots for growth is no easy task, and scaling up your business to survive in such a volatile and sensitive industry is crucial.
History of consolidation within the aviation industry
Consolidation is mostly associated with the 1978 Deregulation Act that was passed in the United States Congress. Prior to the Deregulation Act, the market in the United States was controlled by the Civil Aeronautics Board, which controlled everything from fares, routes, schedules to new players trying to enter the market. While one of the goals of the 1978 law change was to ensure that prices would stay low and competition blossom, the free market utopia did not work, as evident by the current state in the United States market:
In 2018, a total of 777.9 million passengers traveled onboard a United States registered airline. Out of those 777.9 million, 576.8 million were onboard either an American Airlines, Delta Air Lines, United Airlines or Southwest Airlines aircraft, according to Department of Transportation data. Meaning that the top four carriers control 74% of the market.
Consolidation signs in Europe trace even further back than 1978, prior to the establishment of the European Union or its predecessor, the European Coal and Steel Community (ECSC).
One example could be Scandinavian Airlines Systems or SAS for short. The consolidated Scandinavian carrier was born in 1951 when the flag carriers of Denmark, Norway and Sweden combined their forces and formed SAS.
In Britain, the current form of British Airways was formed in a consolidation process: British Overseas Airways Corporation was merged with British European Airways by the British Government. Two, lesser-known airlines, were also added: Cambrian Airways and Northeast Airlines. In the 20th century, British Airways further gobbled up British Caledonian (itself was a result of a takeover of British United Airways) and Dan-Air. It also added British Midland International in 2012; however, at the time BA itself was already under the ownership of International Airlines Group (IAG).
One of the earliest and biggest mergers in the 21st century was the Air France and KLM Royal Dutch Airlines marriage, cleared by the European regulators in 2004. Air France essentially bought KLM. While the two companies operate under the same holding company, they operate independently.
The catalyst for the marriage was the ruling by the European Court of Justice (ECJ) in 2002. ECJ ruled that the European Commission had the power to overrule individual open-skies agreements between its member states and outsiders.
“In most sectors of the economy, Europe speaks with one voice in international negotiations and takes a leading role in shaping events. Until now, aviation has been excluded from this approach as Member States have pursued their own individual agendas. From now on, it is clear from the Court's ruling that we will all have to work together in Europe to identify and pursue our objectives jointly,” said Loyola de Palacio, a Spanish politician and the commissioner of energy and transport in 2002.
Airline consolidation in Europe: current situation
Let’s come back to 2019: what is the current situation like for the market in Europe?
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