Airline mergers: why Europe needs blue sky thinking

IAG's interest in acquiring Norwegian Air Shuttle once again focuses attention on the process of consolidation in the European aviation sector. Although often headline-grabbing, this is a process that has not led to any significant change in market structure in recent years.

The wave of mega-mergers in Europe started with Air France and KLM in 2004, included Lufthansa's acquisitions of SWISS and Austrian, and ended with the 2011 combination of British Airways and Iberia to form IAG. Since then, consolidation has ambled along at a slow pace, led by mergers of smaller scale and market exits.

By comparison with North America, Europe's aviation market remains very fragmented. Europe's top seven airline groups control 55% of seats to/from/within Europe in summer 2018, compared with an 82% share for North America's top seven.

An acquisition of Norwegian would add 3% to IAG's 9% share and take it just ahead of Lufthansa Group as Europe's number one. However, it would leave it well short of American Airlines' market-leading 19% share in North America and still leave Europe in a fragmented state.

Only mergers between Europe's biggest groups could match the seat share of North America's leading players.