Consolidating miles in airline mergers

23-May-2020 09:55

Certainly, some functions may be split into groups in cases where business models are materially different, such as captive low-cost or regional carriers.

This will allow carriers to realize the benefits of scale, preserve the requirements of the business model, and meet local market needs.

Simply put, with the obvious exceptions of global group carriers such as Lufthansa, IAG, and Air France-KLM and profitable low-cost airlines like Ryanair, many European carriers lack the wherewithal to compete in the 21st-century technology landscape; even for bigger, more profitable ones with access to capital, it can be a strain.

Greater consolidation would give European airlines the resources and strategic flexibility to thrive in increasingly unpredictable, challenging times.

Although European industry profit margins were more than four percentage points behind those of the US industry in 2017, European airlines overall achieved a 6.8 percent margin that helped maintain market value. While the European Union may function as a single market, differences in culture and language cannot be ignored, even in business.

For Europe, most consolidation efforts will require multiple air operator certificates (AOC), in contrast to what happened across the Atlantic.

However, absorbing a distressed asset or partial franchise often carries a greater near-term cost.

Shared services will include not just fleet planning and procurement, but also core activities such as maintenance and engineering; operational areas such as crew planning; and commercial functions such as product design, pricing, sales, and marketing.

A few carrier groups are already working toward realizing these synergies, but most still have a long way to go.

Compared to North American airlines, the European aviation sector is more fragmented and less profitable, and shows insufficient capacity discipline.

Carriers that have been attempting to consolidate the market are still unable to replicate the economies of scale that the biggest US airlines have achieved.Yet, resistance continues, despite the fact that European consolidation need not and probably won’t mirror American restructuring.