Americans have probably got to the point where there is no viable route to further consolidation, without running up against anti-trust regulations, and a distinct tilt towards airlines profits over consumer choice.
In Europe it’s still at a stage where there are plenty of airlines occupying niches in regional markets – Volotea and Flybe, along with Monarch, Air Berlin (at least in the short-term), Germania and Air Baltic, all examples of various types of surviving if not dramatically profitable LCC’s.
The trouble for them lies in giants like Lufthansa, AF-KLM, IAG, easyJet, RyanAir and even Norwegian.
The last three have their own vibrant and visually successful business models. The giants, each have their own competing LCC – Vueling, Eurowings and in AFKLM’s case a not so successful Transavia.
All of them know the RyanAir and easyJet pair are untouchable. Norwegian is based entirely on vast amounts of debt cleverly masked by sub-companies, and the movement of ‘wooden dollars’ inside the group. None of them is an attractive partner for the others.
Any number of smaller regional airlines from Air Baltic to Adria, Aegean, Volotea and others are only surviving because fuel prices are low. There’s a lot of argument they will not rise dramatically again during the dying next thirty years of the oil age.
Yet Lufthansa and the others don’t enjoy competition. AF-KLM is permanently strapped for cash, IAG would only be interested in something that drove its Atlantic strategic objectives, which leaves mega-Group Lufthansa. They snapped up almost everything within reach in Germany, Austria, Belgium, and Switzerland, Eurowings is expanding rapidly, its internal competition is minimal or neutralised and other smaller airlines look ripe for a Lufthansa style ‘hands-off’ takeovers. LOT Polish, Air Baltic, Aegean, and further afield Air India all look prime targets. Lufthansa established a deal with Air India to make Delhi an alternative transit hub to Dubai only last year.
The recent ‘purchase’ of Virgin Atlantic shares by AF-KLM, financed by a Delta purchase of AFKLM shares, shows how cash strapped they are. Transavia’s failure to launch – the withdrawal from it’s new Munich base was a depressing lesson in over-ambition, and its progress is limited by lack of investment. Any spare cash seems to have been diverted to the weirdly off-base Joon concept. That is, but isn’t, an Air France junior brand. Nobody but Air France seems to understand what its real purpose is, and its management and marketing was laughed at as trite misconception by pretty much everyone.
The regional airlines are also not in a position to merge, none of them have the cash or the ability to raise it.
So if there is to be consolidation in Europe, its Lufthansa or one of its many subsidiaries I believe will drive it. If they can get it past the EU Commission.
© all words Jon Champs 2017