¨Every single time you make a merger, someone is losing his identity. And saying something different is just rubbish.¨
The Major Players in the US
Consolidation has made the most significant effect on airlines than any other part of the travel industry. (Particularly in the US and Canada).
Over the last decade, the US airline industry has undergone the most dramatic consolidation in its history. Today, just four airlines control over 80% of all domestic flights. Three of these airlines are large, hub-spoke oriented, global legacy carriers (American, United, Delta). The other is a substantial, point-to-point, ‘low cost’ carrier (Southwest).
The Rest of the Airline Industry
The remaining 20% or so of the airline market is in the hands of six much smaller carriers, each with less than 5% of the market.
These airlines include:
- Three smaller, primarily regional carriers (Alaska, JetBlue, Hawaiian).
- Three so-called ‘ultra-low-cost carriers’ or ‘ULCCs’ (Spirit, Frontier, Allegiant).
- Two Canadian carriers; AirTransat and West Jet.
Airline mergers differ from other travel mergers. In other travel businesses, the acquired brands usually retain the same names as before the merger. They also provide similar services as before the merger. However, when airlines merge, the weaker name is retired and the larger company contracts flights, routes, and hubs.
How Does Airline Consolidation Effect Consumers?
Kevin Mitchell, chairman of the business travel coalition, notes: “Most consumers cannot get all their needs met by one of these airlines. In fact, there are thousands of monopoly markets, and as such, imperfect competition, and no true product substitution for many trips.” The ¨imperfect competition¨ generally allows airlines to reduce the number of flights and increase the costs to consumers.
Consolidation is particularly bad for customers in discontinued hubs, like Saint Louis. After its merger with TWA, for example, American Airlines severely reduced service in Saint Louis and moved many flights into its Dallas hub.
Most analysts conclude that the four large remaining carriers cannot merge with any of the remaining six carriers for antitrust reasons.
Does This Mean Consolidation is Over?
At first glance, it seems that airline consolidation should subside in the future because:
- Each of the remaining six smaller carriers has a successful niche.
- None are financially troubled.
- Many are profitably taking advantage of the existing large carriers’ reluctance to go into new untapped, smaller markets. (For example, Allegiant Airlines provides numerous, non-stop flights between small, regional airports, like Peoria, Illinois, and Las Vegas).
That said, we should anticipate the following consolidations in the US and Canada:
- A possible merger between Spirit, Frontier, and Allegiant. Each airline shares similarity in business models (ULCC), fleet commonality, and a heavy reliance on ancillary fees.
- Air Canada has announced its intention to buy Air Transat in July 2019. (Subject to shareholder and Canadian government approval). Air Transat specialized in providing leisure travel services from major Canadian cities (especially Montreal).
Consolidation in Europe’s Airline Industry
While there is much more competition in the European airline industry, consumers should expect more consolidation of a European airline in the future. (There were 38 European airlines in 2016). Why? Because of the low profitably of many national airlines and competition from low-cost airlines and high-service Middle Eastern and Asian carriers. However, the consolidation will probably occur less quickly than in North America because of the high degree of European airline regulation.