Asociacion Latinoamericana de Transporte Aereo (Latin American Air Transport Association)

European airline consolidation to enhance financials? Few deals to be done, at least locally

European airline margins have underperformed other regions for years. There are many reasons for this, but our analysis suggests that Europe’s relative lack of consolidation may be a significant one, since margins appear to be correlated with market concentration. Even after a number of significant deals over the past decade, the European market is less concentrated than North America, where consolidation has gone further, to the benefit of margins. Europe is also less concentrated than Asia-Pacific (analysed as its sub-regions), whose margins have consistently been the highest.

If consolidation brings structural benefits, are there still European deals that can make a difference? Europe has a long tail of small carriers, which are unlikely to have a significant impact, but comparison with North America points to the potential for further combinations among the top five. Nevertheless, there are hurdles to such deals, not least of which are the ongoing restructuring programmes at Europe’s Big Three and the incompatibility of LCC/FSC mergers, but some second tier groups could be targets.

Europe to Latin America: why European airlines are practising their samba, salsa, tango and rumba

TAM will soon defect from Star to join its sister carrier LAN in oneworld. TAP Portugal’s future alliance membership is surrounded by uncertainty until its likely renewed privatisation process is complete. These developments throw the spotlight on the strategic importance of routes from Europe to Latin America to European carriers, who dominate this market, in particular the Big Three, but TAP Portugal, Alitalia and Air Europa also have noticeable positions. The South Atlantic market is only around one fifth of the size of the North Atlantic market by RPKs. So why should Latin America matter to European airlines?

In addition to forecast passenger traffic growth rates that, while not spectacular, are still very respectable and superior to those in Europe and on the North Atlantic, Latin America is a fascinating strategic battleground for Europe’s carriers, both directly and through alliances.

It is a territory of changing alliances and emerging players and, for those that are successful, market share gains can provide significantly higher growth then the underlying market.

Aerolineas Argentinas attempts unlikely turnaround following acquisition of A330s

Aerolineas Argentinas is aiming to turn around its unprofitable long-haul operation by renewing its widebody fleet, adding capacity to several existing destinations and implementing codeshares with its SkyTeam partners. The airline plans to acquire 12 A330-200s over the next four years, allowing it to replace most of its A340s – the only widebody type in its current fleet.

Aerolineas remains unprofitable, an exception in a Latin American industry which has one of the highest profit margins and growth rates in the global industry. Aerolineas and its highly protectionist government owner are often criticised by more successful Latin American airline groups, with a particularly hostile backlash against Argentina taking place at the recent ALTA 2012 Airline Leaders Forum. But Aerolineas has improved its outlook significantly since renationalising and embarking on a restructuring at the end of 2008.

Fixing the long-haul network remains a challenge but the airline’s management team is putting in place the right strategies to give Aerolineas a chance to turn around - and hopefully give the government the confidence to loosen its unhelpfully protective aviation policies.

Latin America growth could slow if infrastructure challenges are not addressed

Latin America is facing a huge infrastructure crunch and a growing risk that airport congestion could impede further rapid growth in passenger traffic. Most of Latin America’s major airports are congested and way behind the curve in responding to the growth of the last decade and preparing for the anticipated growth of the next decade.

The Latin American airline industry has recorded rapid growth over the last 10 years and has become one of the world’s largest emerging markets. But infrastructure has not expanded nearly as fast and most of the region’s governments are still not responding fast enough, according to Latin American and Caribbean airline association ALTA.

IAG tells Iberia to prepare for a changing Europe-Latin America competitive setting

Iberia holds a leading market position in the Europe to Latin America market, but other European legacy carriers are adding capacity in this emerging market and are nibbling at Iberia’s share of the pie.

Demand in the Spanish market for Latin American routes is still strong yet weakening owing to the persistent euro debt worries and contraction of the country’s economy while Iberia is struggling to keep unit cost under control and in-flight amenities in the back of the cabin have not kept up with current comfort and configuration standards.

The pressure is mounting on the other side of the route also, with Latin American carriers developing from small regional players with a mediocre service offering into strong cross-border groups and potentially global players investing in new fleets and on board products.