The end of the old world

Air transport is one of the most fragmented industries on the planet. The International Air Transport Association (IATA) lists nearly 800 airlines worldwide. A staggering figure if we compare it with the automotive industry, a highly concentrated sector with 90 % of market share in the hands of thirteen groups, for some sixty brands. Although the airline industry is fragmented, a dozen or so players, with a combined total of some forty airlines, stand out from the crowd and have embarked on a vast consolidation drive.

While the existence of a critical mass has become the standard for survivalThis is a good indication of what the future may hold for airlines that fail to reach it: disappearance, merger, takeover. In fact, it seems quite likely that by the end of the next decade there will be no more than twenty or so airline groups, each bringing together a multitude of brands. At the same time, there could still be thirty or so more or less independent carriers, generally involved in very specific markets, ranging from low-cost to regional transport to exclusively business-class airlines.

By the end of the next decade, there will be just twenty or so airline groups left, each bringing together a multitude of brands.

After all, it took a century for the world of air travel to see the emergence of the real revolution is taking place in its structures. Indeed, since the first commercial flights, little or nothing had really changed, with airlines supported by the grace of states that never ceased to offer them a destiny. For every nation, owning an airline very quickly became a symbol of a certain modernity, a marker of economic power and, therefore, a vector of national pride.

At the time, flying the flag at every airport in the world seemed like a panacea. Time has barely dented this concept of the "compagnie-aérienne-objet-de-prestige". Recent attempts to sellAlitalia or Malaysia Airlines In particular, they came up against opposition linked to the shame of seeing the national flag pass into the hands of a foreign shareholder. We will also recall the initial hostility of the Air France unions to the arrival at the head of the company of a Canadian CEO in the person of Benjamin Smith.

Another recent example is the decision taken last October by Air New Zealand to close its London stopover - its only route to Europe - which has led to a number of serious problems. very strong reactions among New Zealand passengers, with some even calling on the airline to abandon the closure. And yet, economically, there is no longer any justification for this Auckland-Los Angeles-London flight which, according to Air New Zealand management, now attracts just 7 % of passenger traffic between New Zealand and the UK, well behind Emirates' market share...

Putting things in order

Our fault, however, is not that in the past we have tried to tidy things up a bit in the proliferation of airlines. As far back as the 1960s, some thought about it, but the idea of pooling forces was then essentially underpinned by political rather than economic considerations. The most significant example at the time was Air Afrique, in which no fewer than a dozen West African states were involved. At the height of its glory, Air Afrique was one of the continent's three largest carriers, with a network of over 35 destinations, including New York.

The same could be said of Gulf Air, the national airline of four Gulf monarchies - Abu Dhabi, Bahrain, Oman and Qatar - until the 1990s, or SAS Scandinavian Airlines, owned by the Danish, Norwegian and Swedish governments. Of these supranational companiesOnly SAS has retained the Danish and Swedish governments as shareholders. Air Afrique disappeared in 2002, while Gulf Air became the national carrier of the Kingdom of Bahrain.

What has happened in the United States undoubtedly foreshadows what air transport will be like in other parts of the world, particularly in Europe.

The famous deregulation at the end of the 1970s really kick-started the rationalisation of air transport that continues today. Pioneers of a total deregulationAt that time, the United States saw the end of monopolies on domestic and international routes. As a result, airlines were forced to compete with each other by offering lower fares, launching new routes and setting up powerful airport hubs, sometimes less than 200 km apart.

The battle has been fierce, with many victims. Since 1985, Continental Airlines, Eastern Airlines, Northwest Airlines, PanAm, TWA and US Airways, to name but a few, have disappeared or merged. The deregulation phenomenon has also affected neighbouring Canada. Air Canada has gradually absorbed all its competitors in a bid to arm itself against the airline giants on the other side of the border. After Canadian Airlines 18 years ago, it will probably be Air Transat's turnwhose takeover is expected to be formalised by the authorities in the first half of 2020.

These mergers and acquisitions have concentrated North American air transport in the hands of some mega carriers. According to FAA statistics, in 2009 there were 39 airlines in the USA carrying at least one million passengers a year. By 2018, this figure had fallen to 26. Another telling figure is that the top ten carriers in the US accounted for 85.5 % of all passenger movements in 2018, compared with 73 % ten years earlier.

This hyper-concentration is even more apparent if we consider just the four largest US airlines. In 2009, American Airlines, Delta Air Lines, Southwest and United had a combined market share of 45 %. In 2018, this had risen to 65 % of total passengers carried. In the end, five incumbent carriers - Alaska Airlines, American, Delta, Hawaiian Airlines and United - now concentrate the domestic and international offer. Facing them are five major low-cost carriers: the giant Southwest Airlines, Allegiant, Frontier, Spirit and a "top-of-the-range" low-cost carrier, Jetblue. Jetblue has big ambitions on the North Atlantic route and in 2021 will be launching flights to London from New York and Boston.

The 70 other US carriers listed by the FAA operate on a very regional basis or have long since lost their autonomy, serving the hubs of one or more of the incumbent operators. Today, it is unlikely that major new changes are still operating in the United States, as the existing airlines have reached critical mass. However, there is talk that Hawaiian Airlines could eventually merge with either Alaska Airlines or Jetblue.

A cascade of bankruptcies

What has happened in the United States undoubtedly foreshadows what air transport will be like in other parts of the world, particularly in Europe where the industry, historically less concentrated than its North American counterpart, is now catching up. delay in consolidation. Moreover, 2019 will go down as a particularly deadly year with the bankruptcy of French carriers. Aigle Azur and XL Airwaysthe UK's Flybmi and the Thomas Cook group of airlines, and the disappearance of Slovenia's national carrier Adria Airways.

These liquidations have highlighted the faltering health of secondary carriers. The concentration waltz is continuing, with the IAG group announcing at the beginning of November that it was buying Spain's second airline, Air Europa. Specialising in Latin America, it offers the prospect of numerous synergies with Iberia, one of the pillars of IAG, in order to strengthen the Spanish national carrier's hub in Madrid.

This black year for aviation was predicted a long time ago by a visionary: Michael O'Leary, the CEO of Ryanair. In an interview with the Reuters press agency at the end of October, he said that Europe would soon have only three major airline groupsThese are Air France-KLM, IAG - parent company of British Airways, Iberia, Aer Lingus and Vueling - and Lufthansa, which includes Austrian, Brussels Airlines, Eurowings and Swiss. At the same time, two low-cost giants, easyJet and Ryanair, will remain.

In fact, his vision is shared by other airline executives. Carsten Spohr, the boss of the Lufthansa group, is even more radical. Last August, the German CEO told AFP that only a dozen airlines in the world would be operating long-haul routes in the future - three in the United States, three in Europe, three in the Gulf and three in China. A excessive pessimism probably.

The five carriers mentioned by Ryanair's CEO account for 80 % of Europe's passenger traffic, and are expected to carry even more weight in the future. We know that Italy's national airline Alitalia will soon be joining forces with one of the big three historic groups. There is much talk of a extensive cooperation with Lufthansa, with some observers even talking of a possible integration within the German group.

If Lufthansa were to swallow Alitalia, the European group would be doing more than just consolidating its position as the world's largest airline group. championship title on the continent. The group carried 142 million passengers last year, ahead of Ryanair at 139 million. With Alitalia in its portfolio, Lufthansa would have carried 165 million passengers. IAG had 113 million passengers in 2018. With Air Europa, the group would increase to almost 125 million, leaving Air France-KLM, with 101 million, and easyJet, with 92 million passengers, far behind.

Among the three European leaders, the Lufthansa group has so far perfectly integrated its various brands. While Lufthansa and Swiss are positioning themselves in the premium segment, Austrian Airlines is offering a hybrid model, while Brussels Airlines and Eurowings are targeting more point-to-point traffic.

European champion, the Lufthansa group carried 142 million passengers last year, ahead of Ryanair at 139 million.

The size of the German group does not prevent some of its subsidiaries from being weak. Last November, for example, Lufthansa presented a drastic restructuring plan for both Brussels Airlines and Austrian. From now on, Brussels Airlines will specialise mainly in links between Europe and sub-Saharan Africawhich covers 17 destinations. Austrian, for its part, suffers from the presence of the bases of four low-cost carriers in Vienna, but can take advantage of the excellence of this hub to destinations in Eastern Europe, the Middle East and Asia.

IAG has adopted the same multi-brand model than its German counterpart. Two premium airlines thus form the core of IAG - British Airways and Iberia - with their excellent networks to the Americas as their main asset. Added to these are two hybrid carriers, Ireland's Aer Lingus and soon Air Europa, and two point-to-point carriers, Vueling and Level. As for Air France-KLM, "its first priority was to simplify its brand portfolio with the closure of Joon and the reintegration and subsequent closure of HOP"recently explained Anne Rigail, CEO of Air France.

Greater flexibility in the management of both the fleet and human resources will enable us to fine-tune the strategy defined at the beginning of November by Group CEO Benjamin Smith which focuses on three strong brands Air France on a premium segment playing the French refinement card, KLM on connecting traffic with its Schiphol hub and Transavia for so-called leisure traffic. Transavia's ambition is to become the leading low-cost airline based in France, an ambition that is currently somewhat thwarted by the lack of aircraft and pilots. Finally, if the opportunity arises to acquire another carrier, Air France-KLM has announced that it intends to give it some thought, since, according to its management, it is "a major player in the air transport sector".aware of the consolidation trend in Europe".

Future on hold

Around these three groups there are fifteen other companies in Europe. But will they all stand up? The future of SAS Scandinavian Airlines, which in recent years has lost market share in transfer traffic to Finnair in Helsinki and KLM in Amsterdam, is still up in the air. In the long term, it will probably have to move closer to a partner - the Polish airline LOT has been mentioned - or join a megagroup altogether.

The future of Turkish Airlines, on the other hand, is much brighter, with its development assured by the Istanbul's new airport, capable of competing with the mega-hubs of the Gulf carriers. Europe's sixth-largest airline, with 75 million passengers, it is proud to have the world's largest air network with over 300 destinations covered. Aeroflot, another European giant with 56 million passengers, is also unlikely to see its independent status threatened, as the airline benefits from a captive - and loyal - market in Russia and the former Soviet republics.

In the Middle East, the proliferation of airlines seen over the last twenty years has probably reached its limits.

Sustainability is also a priori assured for three companies positioned in the following sectors niche markets : Finnair, TAP Air Portugal and LOT Polish Airlines. These three carriers have each developed their own specificity: Finnair plays the Europe-Asia route card, TAP Air Portugal is the champion of traffic between Europe and Brazil and LOT Polish Airlines is in the process of succeeding in its bid to become the benchmark carrier in Central Europe. Its growth is even fascinating, with the airline having gone from 4.3 million passengers in 2015 to 10 million in 2019. LOT is increasing its flights to Asia and the United States from Warsaw and has launched a second hub in Budapest.

In the Middle East, the increase in the number of companies over the last twenty years has probably reaches its limits. In a local market of just 55 million inhabitants, there are three global carriers - Emirates, Etihad and Qatar Airways - and four challengers - Gulf Air, Oman Air and Saudia Airlines.

However, we are hearing more talk of cooperation than in the past - is the commercial merger between Gulf Air and Saudia the first step towards a potential merger? -Not to mention the sea serpent Emirates and Etihad to merge. It is true that rationality seems to have no hold on these two carriers of the same nationality, who are engaged in fierce competition via their two mega hubs only 130 km apart!

National pride

It is in Asia that the concentration observed everywhere is most likely to fail. feelings of national pride in this part of the world. Only China and Korea could rationalise their airline industry through possible mergers. China's three major airlines - China Southern, China Eastern and Air China - each carry more than 100 million passengers a year, accounting for more than 60 % of the country's total traffic. This still leaves 40 % of market share for others... In Korea, Asiana's difficulties could eventually lead to a merger with its rival Korean Air. As for South-East Asia, each government is too proud to let its national carrier go. Thai Airways International is learning this the hard way. The Thai national airline's main shareholder is the Thai Ministry of Finance. Turnaround plans and new losses follow one another, but at least the honour is safe!