Since the Airline Deregulation Act of 1978, the aviation industry has unquestionably remained one of the most ultra-competitive sectors, hence its industry consolidation. Come 2018, and the unrelenting struggle over squeezing margins, ever-expanding passenger numbers and volatile fuel prices has seen the recent departure from the sector of the likes of Monarch Airlines, Air Berlin and soon-to-be Alitalia.
In a bid to keep their planes in the sky, airlines have resultantly looked to convergence-type strategies such as mergers, airline groups and joint-ventures. They try to remain well-connected, competitive and relevant in an industry that is often dominated by the heavily subsidized, government-backed carriers such as the infamous Gulf State three: Emirates, Qatar Airways and Etihad. In turn, the apparent need to form these various partnerships has the capacity to create the most unlikely instances of collaboration; all in the name of getting that extra bum-on-seat.
| US | Europe | |
| Oneworld | American Airlines | IAG |
| SkyTeam | Delta Airlines | Air France-KLM |
| Star Alliance | United Airlines | Lufthansa Group |
Table 1. Outlining the current formation of major Airline Groups, and their corresponding Alliances within the US & Europe
Everyone is wanting a slice of the pie
It is both symbolic and reflective of the industry’s cutthroat nature that a French and Dutch airline would join forces. Even an industry leader like Qatar Airways still seeks codeshare agreements with British Airways and Iberia as part of its 20% stake in IAG. Even more recent, one of the most quintessential rivalries has been eased. Qantas and Air New Zealand (who originate from different alliances) announced a new codeshare agreement that covers their respective domestic networks.
Amongst the benefits of heightened connectivity and market share, consolidation within the aviation industry has the propensity to generate significant innovations amongst airlines. This will ultimately seek to combine their resources. For example, an airline group that connects each member’s respective digital presence and AI mechanisms, has the enhanced ability to create a business that genuinely understands the wants and demands of its customers. With this improved access to information, an airline group can more accurately implement strategic changes, recognizing whether there is more value in developing a new low-cost carrier (LCC), or investing further in the quality of their full-service airline etc.
So, what can we expect to see in the airline industry?
At present, the industry continues to churn out more and more agreements. Fiji Airways has just become a Oneworld “connect” partner. In turn this will link the Pacific Island nation to the alliance’s extensive network. The notorious LCC, Ryanair, have publicly stated their interest in developing an airline group of their own, Ryanair Holdings. Such an entity could have fascinating implications for the industry. The prospective project would have the potential to become the sector’s first ever LCC-specific airline group. All the while, IAG has also made public their desire to acquire another up-and-coming LCC in Norwegian Airlines. Finally, Lufthansa Group are also considering the potential acquisition of the bankrupt Alitalia. They have also been linked to the Sweden-based Scandinavian Airlines (SAS).
A logical question to ask at this point is what does all of this consolidation tangibly mean for the average customer? Arguably the biggest thing for a passenger to understand will be the heightened value of loyalty to an airline alliance. With more airlines joining Oneworld, SkyTeam, or Star Alliance, it may be best to choose one alliance and stick with it. The extensive membership of these alliances ensures no destination is unreachable, no matter your choice. By remaining loyal to a single alliance, you gain access to discounts, seamless international connections, and a higher chance of scoring an upgrade.
As such, both airlines and passengers can, and are, finding safety in numbers by way of benefitting from the implications of the industry’s ongoing consolidation.