Consolidation in the European aviation sector will make the big airlines bigger

In the European aviation sector, there is no middle ground anymore. On scheduled flights, travellers have to choose between service and price. There is no longer room for holiday carriers and regional airlines, after tremendous consolidation that occurred in the last two years. Holiday carriers like Air Berlin, Monarch Airlines, Primera Air and Germania disappeared. In addition, several regional airlines ceased to exist and Flybe, the largest regional airline in Europe, was forcefully sold to a consortium of buyers led by Virgin Atlantic.

There is no longer room for small players in the European airline industry. In the past year 2018, the market share of the ‘big five’ (Lufthansa Group, Ryanair, IAG, Air France-KLM, easyJet) increased to 50.6%, according to a study by Scope Ratings. Ryanair is the largest player in Europe with 139.1 million passengers in 2018 and a market share of 12%. Nowadays, over 40% of the flights within Europe are carried out by low-cost airlines. The biggest low-cost carriers in Europe are Ryanair, easyJet, Norwegian, Wizz Air, Vueling, Eurowings and Pegasus Airlines. The largest full-service carriers in Europe are the national flag carriers Lufthansa, Air France, KLM, British Airways, Turkish Airlines, Aeroflot and Scandinavian Airlines.

“Ryanair is the largest player in Europe with 139.1 million passengers in 2018 and a market share of 12%.”

More consolidation is likely in the coming years; airlines will either topple over or be taken over. The definitive takeovers of Alitalia and Flybe for instance, are imminent. In the meantime, full-service carriers can reclaim lost market share on long-haul routes given that Gulf carriers are struggling and the long-haul low-cost experiment failed. The European holiday market is up for grabs for the low-cost carriers after several larger holiday carriers have vanished. Besides, there is nothing to fear anymore from regional competition.

Full-service carriers are coming out on top

For many years the bigger European airlines were able to grow due to the lack of any meaningful competition. This changed with the appearance of budget airlines (within Europe), Gulf carriers (Europe – Asia) and long-haul low-cost flights (Europe – North America). All of a sudden, airlines like Air France, Lufthansa, British Airways and Iberia had to start cutting costs in order to be able to compete with the lower prices of the new challengers. These airlines could grab significant market shares in a short period of time. Now, years later, they seem to have succeeded for the most part and are able to offer airline tickets at much more competitive prices. With the gaps significantly reduced, the low-cost airlines and Gulf carriers are no longer able to offer obviously more attractive products.

European low-cost carriers seem to be well aware of this and they are trying to adapt their business to be more customer oriented. Within Europe, full-service carriers must consider the growing market share of the low-cost carriers, but outside of Europe, many opportunities await.

Gulf carriers are struggling

In the Middle East region, Etihad Airways is in heavy weather after failed investments in Air Berlin, Alitalia and Jet Airways. After years of investing in distressed airlines, they now may have to consider finding a reliable partner themselves. Dubai International Airport, home base of Emirates and flydubai, only managed to grow 1% in the past year. A big setback following years of unprecedented growth. There even is doubt regarding the viability of the “largest airport in the world” Al Maktoum International Airport. Emirates denies reports on a takeover of Etihad Airways, but things can change quickly. The struggles that many airlines in the United Arab Emirates are facing seem not to affect Qatar. The national airline, Qatar Airways, keeps showing a positive growth rate and is still opening new routes. The future looks bright for Qatar Airway, especially giving the upcoming Middle East’s first football World Cup in 2022.

Long-haul low-cost failed

A couple of years ago there was suddenly a lot of attention for a new market. Long-haul low-cost was expected to bring significant changes, in particular to the intercontinental market between Europe and North America. Norwegian took the lead, followed by Icelandic WOW air, Primera Air, Joon (Air France-KLM) and LEVEL (IAG Group). The competition was expected to be fierce for European full-service carriers. Now, at the start of 2019, it looks like the experiment has failed once again. Norwegian was forced to close many routes, and WOW air avoided bankruptcy due to a money injection from Indigo Partners who acquired a 49% share in the company. Primera Air did go bankrupt, Joon airlines will cease operations in June 2019 and insiders wonder how much longer LEVEL will survive.

Holiday market’s potential

In recent years, the business market has been increasingly popular with low-cost airlines. Ryanair, for instance, moved many flights from secondary airports to primary airports. The question is where the focus will be in the coming years with a holiday market offering many opportunities after the demise of well-known names like Air Berlin, Monarch Airlines, Small Planet Airlines, Primera Air and Germania. Ryanair already showed an interest in Germania and the airlines division of Thomas Cook Group which was recently put up for sale. In addition, TUI still intends to get rid of French airliner Corsair International. Currently, over 40% of all the flights within Europe are operated by low-cost carriers. Insiders expect this share to continue growing. The takeover of the holiday market could result in an even bigger growth.

List of airlines bankruptcies 2017 – 2019

2017

Alitalia, Italy – Announced bankruptcy in May 2017. A credit of the Italian government keeps the Italian flag carrier alive. Investors in a group formed by rail operator ‘Ferrovie dello Stato’, Delta Air Lines and easyJet are considering a capital injection of about 1 billion euros.

Monarch Airlines, United Kingdom – Declared bankrupt in October 2017
Air Berlin, Germany – Declared bankrupt in October 2017
Darwin Airline, Switzerland – Declared bankrupt in December 2017

2018

Nextjet, Sweden – Declared bankrupt in May 2018
VLM Airlines, Belgium – Declared bankrupt in August 2018
SkyWork Airlines, Switzerland – Declared bankrupt in August 2018
CityJet, United Kingdom – Stopped scheduled flights in August 2018, still active as wet lease specialist
Azur Air Germany, Germany – Declared bankrupt in September 2018
Primera Air, Denmark and Primera Air Nordic, Latvia – Declared bankrupt in October 2018
Cobalt Air, Cyprus – Declared bankrupt in October 2018
Small Planet Airlines, Lithuania – Declared bankrupt in November 2018

2019

Germania, Germany – Declared bankrupt in February 2019
flybmi, United Kingdom – Declared bankrupt in February 2019
Joon, France – The airline will be remerged into Air France in June 2019

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