Airline Industry Consolidation, It’s Here to Stay

Airline Industry Consolidation

Since the Airline Deregulation Act of 1978, the aviation industry has unquestionably remained one of the most ultra-competitive sectors within the world of business, hence the airline 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 so 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.

OneworldAmerican AirlinesIAG
SkyTeamDelta AirlinesAir France-KLM
Star AllianceUnited AirlinesLufthansa 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 as truly symbolic as it is reflective of the industry’s cutthroat nature, that a French and Dutch airline would choose to join forces, or for an industry leader such as Qatar Airways to still seek out codeshare agreements with the likes of British Airways and Iberia, as a part of their 20% stake in IAG. Even more recent, one of the most quintessential rivalries has been eased, with Qantas and Air New Zealand (who originate from different alliances) announcing 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, which 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, with Fiji Airways having just been confirmed as a Oneworld “connect” partner, which will in turn link the Pacific Island nation to the alliance’s extensive network. Closer to home, the notorious LCC, Ryanair, have publicly stated their interest in developing an airline group of their own, touted as Ryanair Holdings. Such an entity could have fascinating implications for the industry, with the prospective project having 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, whilst also having 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 continuing to bolt on to one of Oneworld, SkyTeam or Star Alliance, it might simply be a matter of choosing an airline and its corresponding alliance and sticking with it. The exhaustive membership list of these alliances mean that no destination will be unreachable, regardless of which partnership you are associated with. In turn, by sticking loyal to one alliance you will ensure that you gain access to discounts, seamless connections when travelling internationally, and the increased likelihood of that ever-elusive 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.

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