More consolidation for Euro carriers?
An interesting report caught my eye the other day.
October 1, 2014
By Donald Urquhart
An interesting report caught my eye the other day. The Wall Street Journal carried a story on a report from the French export credit agency Coface that suggested Europe’s airlines may be preparing for what it described as a new “US-style merger round”. After the earlier round of mergers – Air France combining with KLM and Martinair; British Airways with Spain’s Iberia, BMI and Vueling; and Lufthansa with Swiss, Austrian and Germanwings – Coface says yet another round of consolidation, mirroring that which has taken place in the US, is “probable”.
The problem with the earlier round of consolidation is that while it gave the three groups a better critical mass, a number of market factors have stunted the higher profitability that such mergers were envisaged to foster. Both Air France-KLM, the region’s largest carrier and Lufthansa issued profit warnings this year amid ongoing weakness in global cargo markets, labour unrest and overcapacity in key markets that put severe pressure on returns. The airline groups have also faced intensified competition from discount carriers, particularly on their short haul routes and have struggled against rapidly intensifying competition from Middle East carriers, the likes of Emirates, Qatar and Etihad.
The Coface report’s authors go on to say that this Middle East competition “is already undermining the entire European air transport industry a little more every day.” The report clearly echoes complaints long made by European carriers as to what they see as an uneven playing field on which they compete with the Middle East carriers. The idea behind another wave of consolidation would be to create what Coface describes as “EU super players”. The report posits that “the emergence of the EU super players will make it possible to confront the foreign competition.”