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American-US Airways merger: the competitive impact on European carriers

21-Feb-2013

The planned merger of AMR Corp, parent of American Airlines, and US Airways Group will have a small, but noticeable impact on European airlines via their North Atlantic networks. The merged AA-US Air will be the number four ranked airline group on the North Atlantic, an improvement on AA’s current sixth place. In terms of the alliances, if this merger and the Delta-Virgin Atlantic deal both complete, the three global alliances will have divided routes between Europe and North America almost equally between them, with little left for non-aligned carriers.

AA and US Air operate to Europe from different US hubs and there is no city pair route overlap between the two (so competition authorities seem unlikely to worry themselves on the grounds of these operations). However, when looking at overall markets between the US and individual European countries, the merger will have a competitive impact on European carriers’ North Atlantic activities, most notably Iberia and Alitalia, followed by Aer Lingus.

AA-US Air will be the number three airline on the North Atlantic

Based on summer 2013 schedule seat capacity data in the Innovata database, American Airlines is currently the number five carrier on the North Atlantic, with a 6.7% share, while US Airways is ranked number nine, with a share of 4.6%. The merger of the two would place the new American Airlines at number three, with 11.3%, only just behind number two United by 1,004 weekly seats (little more than two Boeing 747-400s). Market leader Delta has a share of 13.5% and although it is not merging with eighth placed Virgin Atlantic, the proposed Delta-Virgin JV would control 18.6%, further extending Delta’s lead. The AA-US merger will give all top three places to US carriers, pushing the leading Europeans into the minor places.

Top 20 airlines Europe to North America by seats 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Delta Air Lines

248,426

13.5%

2

United Airlines

209,283

11.3%

 

AA + US

208,279

11.3%

3

British Airways

191,076

10.4%

4

Lufthansa

151,100

8.2%

5

American Airlines

122,767

6.7%

6

Air France

113,642

6.2%

7

Air Canada

105,902

5.7%

8

Virgin Atlantic Airways

94,138

5.1%

9

US Airways

85,512

4.6%

10

Air Transat

81,492

4.4%

11

KLM Royal Dutch Airlines

44,728

2.4%

12

SWISS

34,452

1.9%

13

Turkish Airlines

31,908

1.7%

14

Alitalia

29,736

1.6%

15

Iberia

28,878

1.6%

16

Aer Lingus

28,048

1.5%

17

airberlin

27,876

1.5%

18

SAS

26,506

1.4%

19

Icelandair

26,166

1.4%

20

Aeroflot

16,352

0.9%

 

Others

146,968

8.0%

   

1,844,956

 

AA-US Air will be the number four airline group on the North Atlantic

Reassembling this ranking to show the top 10 by airline group, not just by individual operating carrier, AA is currently number six and US Air number nine. The main difference in the top places from our first table is that IAG is second ranked, while BA on its own was third. The merged AA-US Air will be the number four ranked airline group on the North Atlantic.

Top 20 airline groups Europe to North America by seats 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

 

1

Delta Air Lines

248,426

13.5%

2

IAG

219,954

11.9%

3

United Airlines

209,283

11.3%

 

AA + US

208,279

11.3%

4

Lufthansa   Group

198,414

10.8%

5

Air   France-KLM

158,370

8.6%

6

American Airlines

122,767

6.7%

7

Air Canada

105,902

5.7%

8

Virgin Atlantic Airways

94,138

5.1%

9

US Airways

85,512

4.6%

10

Air Transat

81,492

4.4%

An effective three-way split between the global alliances

Our third assembling of seat capacity on the North Atlantic re-groups the data into global airline alliances. Star is the leading North Atlantic alliance, followed by SkyTeam and then oneworld. Assuming not only that the AA-US Air merger goes ahead, but also that Virgin Atlantic joins SkyTeam following the planned acquisition of 49% of its shares by Delta, the alliance ranking would not change.

However, the gap between the three would narrow, with oneworld increasing its share from 21% to 25% and SkyTeam growing from 25% to 30%, while Star’s share would drop from 38% to 33%. The share held by non-aligned carriers would fall from 17% to just 12%. These two imminent airline deals will leave the North Atlantic as an effective three-way split between the global alliances.

Global airline alliances Europe to North America by seats 29-Jul-2013 to 04-Aug-2013

 

Now

Post AA-US and Delta-Virgin*

Alliance

Seats

% share

Seats

% share

Star Alliance

701,083

38.0%

615,571

33.4%

Skyteam

457,070

24.8%

551,208

29.9%

Oneworld

379,751

20.6%

465,263

25.2%

Non-aligned

307,052

16.6%

212,914

11.5%

Total

1,844,956

100.0%

1,844,956

100.0%

Five European airports are served by both AA and US Air;  biggest combined share at Manchester and Madrid

There are five European airports that are served by both American Airlines and US Airways – Frankfurt, London Heathrow, Madrid, Manchester, Paris CDG and Zurich. However, since the pair operate to these airports from different US hubs, there are no city pairs on which the merger will have an immediate competitive impact. Nevertheless, it is interesting to look at the total market capacity from each of these airports to the United States and to determine how the market share of the combined AA-US Air will rank against the main competitors to the US.

European airports served by US Airways and American Airlines 18-Feb-2013 to 24 Feb-2013

US Air

 

American Airlines

 

European destination

Served from

European destination

Served from

Amsterdam Schiphol

Philadelphia

   
   

Barcelona El Prat

Miami, JFK

Brussels

Philadelphia

   

Dublin

Charlotte, Philadelphia

   

Frankfurt

Charlotte, Philadelphia

Frankfurt

DallasFort Worth

London Gatwick

Charlotte

   

London Heathrow

Charlotte, Philadelphia

London Heathrow

JFK, Chicago

Madrid Barajas

Charlotte, Philadelphia

Madrid Barajas

DallasFort Worth, Miami, JFK

Manchester

Philadelphia

Manchester

JFK, Chicago

   

Milan Malpensa

JFK

Munich

Philadelphia

   

Paris Charles De Gaulle

Charlotte, Philadelphia

Paris Charles De Gaulle

Boston, Chicago, DallasFort Worth, Miami, JFK

Rome Fiumicino

Charlotte, Philadelphia

   

Zurich

Philadelphia

Zurich

JFK

The European airports at which the combination will be felt the most are Manchester, where AA-US Air will have a 29% share of seat capacity to the US this summer (versus leader Virgin Atlantic on 30%); Madrid, where it will have 27%; and London Heathrow, where it will have 17%. While there will be no direct impact on specific city pair routes, an enhanced presence at an airport can help to promote market awareness and can build a carrier’s profile as a significant player on routes to the US.

Manchester to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

Virgin Atlantic

29.8

AA-US Air

29.4

American Airlines

18.1

US Airways

11.3

United

15.0

Delta

10.5

Pakistan International

6.5

Thomas Cook

8.8

Madrid to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

Iberia

49.7

AA-US Air

27.1

American Airlines

16.0

Delta

11.9

US Airways

11.1

Air Europa

7.2

United

4.1

London Heathrow to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

British Airways

40.8

AA-US Air

17.1

Virgin Atlantic

17.0

American Airlines

14.9

United

15.3

Delta

8.1

US Airways

2.2

Paris CDG to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

Air France

52.4

Delta

20.4

AA-US Air

13.8

American Airlines

9.8

United

7.9

US Airways

4.0

Zurich to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

SWISS

60.5

United

12.5

Delta

13.9

AA-US Air

13.0

American Airlines

6.8

US Airways

6.2

Frankfurt to United States airline share by capacity (seats) 29-Jul-2013 to 04-Aug-2013

Carrier

Share of seats

Lufthansa

54.6

United

20.4

AA-US Air

10.8

US Airways

8.8

Delta

5.8

Singapore Airlines

3.6

Condor

4.8

American Airlines

2.0

Markets between the US and key European countries will feel different levels of impact

Looking at country pairs between the US and the major western European nations, American Airlines and US Airways have a combined share of more than 25% in only two markets – Spain (32%) and Italy (26%) – and on one further market, Ireland, their combined share is 23%. On routes to Spain, market leader Iberia is only a little ahead, with a 36% share, while Alitalia’s leading share on Italy is even smaller at 32%. On Ireland, Aer Lingus’ position is more comfortable, with a share of 46%.

The merger is likely to have the biggest impact on European competitors where American Airlines and US Airways make the greatest market share gain as a result of the merger and where the market leader has a relatively low share.

American Airlines and US Airways capacity (seats) United States to principal western European countries, 29-Jul-2013 to 04-Aug-2013

The only other markets where the AA-US Air combination would have a double-digit share are the UK, France and Switzerland. The US to UK market is by far the biggest US to Europe country market and the new American would be ranked number three, with a 17% share, up from fourth place with 14%. Market leader BA has only 36% and will feel some extra heat, although the merger is unlikely to be a game changer in the already very competitive UK market.

The story is similar in France, where AA-US Air would move to third with a 13% share, but leader Air France is further ahead with 49%. In Switzerland, the combined AA-US Air share would only just move into double digits – it would be fourth on 11% and this is unlikely to have much impact on SWISS at number one with 57%.

American Airlines and US Airways share of capacity (seats, %) United States to principal western European countries, 29-Jul-2013 to 04-Aug-2013

Top nine airlines United States to United Kingdom by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

British Airways

80,908

36.1%

2

Virgin Atlantic Airways

46,085

20.6%

 

AA + US

37,869

16.9%

3

United Airlines

36,813

16.4%

4

American Airlines

30,645

13.7%

5

Delta Air Lines

16,793

7.5%

6

US Airways

7,224

3.2%

7

Thomas Cook Airlines

2,486

1.1%

8

Air New Zealand

2,324

1.0%

9

Kuwait Airways

819

0.4%

 

Total

224,097

 

Top eight airlines United States to Germany by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Lufthansa

66,899

48.8%

2

United Airlines

26,383

19.3%

3

airberlin

13,332

9.7%

 

AA + US

13,118

9.6%

4

Delta Air Lines

9,954

7.3%

5

US Airways

9,786

7.1%

6

Condor Flugdienst

4,233

3.1%

7

American Airlines

3,332

2.4%

8

Singapore Airlines

3,115

2.3%

 

Total

137,034

 

Top nine airlines United States to France by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Air France

47,700

49.0%

2

Delta Air Lines

20,284

20.9%

 

AA + US

12,530

12.9%

3

American  Airlines

8,918

9.2%

4

United Airlines

7,168

7.4%

5

XL Airways France

3,772

3.9%

6

US Airways

3,612

3.7%

7

British Airways

2,280

2.3%

8

Air Tahiti Nui

2,058

2.1%

9

OpenSkies

1,482

1.5%

 

Total

97,274

 

Top five airlines United States to Netherlands by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Delta Air Lines

34,625

60.8%

2

KLM Royal Dutch Airlines

13,072

22.9%

3

United Airlines

6,230

10.9%

4

Arkefly

1,764

3.1%

5

US Airways

1,302

2.3%

 

Total

56,993

 

Top five airlines United States to Italy by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Alitalia

13,230

32.4%

2

Delta Air Lines

11,982

29.4%

 

AA + US

10,647

26.1%

3

US Airways

5,922

14.5%

4

United Airlines

4,935

12.1%

5

American Airlines

4,725

11.6%

 

Total

40,794

 

Top six airlines United States to Spain and Canary Islands by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Iberia

14,439

35.6%

 

AA + US

13,083

32.3%

2

Delta Air Lines

8,531

21.0%

3

American Airlines

7,791

19.2%

4

US Airways

5,292

13.1%

5

United Airlines

2,394

5.9%

6

Air Europa Lineas Aereas

2,093

5.2%

 

Total

40,540

 

Top five airlines United States to Ireland by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

Aer Lingus

14,024

45.8%

 

AA + US

6,916

22.6%

2

Delta Air Lines

5,234

17.1%

3

United Airlines

4,446

14.5%

4

US Airways

4,032

13.2%

5

American Airlines

2,884

9.4%

 

Total

30,620

 

Top five airlines United States to Switzerland by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

SWISS

15,574

56.6%

2

United   Airlines

5,768

20.9%

3

Delta   Air Lines

3,192

11.6%

 

AA + US

3,003

10.9%

4

American   Airlines

1,575

5.7%

5

US   Airways

1,428

5.2%

 

Total

27,537

 

Top five airlines United States to Belgium by seats: 29-Jul-2013 to 04-Aug-2013

Rank

 

Total Seats

% share

1

United Airlines

5,490

36.9%

2

Brussels Airlines

3,208

21.5%

3

Delta Air Lines

3,192

21.4%

4

Jet Airways

1,575

10.6%

5

US Airways

1,428

9.6%

 

Total

14,893

 

Iberia and Alitalia may feel the heat the most: CAPA Competitive Impact Index

As noted above, the merger of American Airlines and US Air is likely to have the biggest impact on European competitors where they make the greatest market share gain as a result of the merger and where the market leader has the lowest share. With this in mind, the chart below attempts to summarise and rank the airlines on which the merger will have most competitive impact with respect to their North Atlantic operations.

The chart shows how much incremental capacity the merged company will control after the merger as a percentage of the capacity of the current market leader between the US and the country concerned. For the purposes of this index, incremental capacity controlled by the merger is defined as the existing capacity of the smaller of AA and US Air between the US and the relevant country. For example, on US to Spain, American has a 19% share and US Airways has 13% so the larger of the two in this market, American, will gain an incremental 13%. The leader, Iberia, which has 36%, will now face a competitor who has effectively added capacity that is equal to almost 37% of its own capacity (13% of 36% gives 37%).

The CAPA Competitive Impact Index: incremental capacity controlled by AA-US Air as a result of the merger as a percentage of the market leader’s capacity

According to our analysis, Iberia and Alitalia are likely to be most affected competitively on their North Atlantic networks, followed by Aer Lingus. It is worth noting, however, that, since AA and US Air operate from different US hubs, there is no airport to airport route overlap between the two and so there may be little incremental competitive pressure felt by European carriers in practice, at least initially.

Nevertheless, where the new AA-US Air merged carrier has a more significant market presence, such as in Spain, Italy and Ireland, it may derive branding and marketing benefits, which could facilitate any plans to add frequencies or routes from those countries.


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