21-Feb-2013 3:35 PM

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

Analysis

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.

Summary

The merger of AMR Corp and US Airways Group will have a small but noticeable impact on European airlines via their North Atlantic networks.
The merged American Airlines and US Airways will become the number three airline on the North Atlantic, behind Delta and United.
The merger will result in a three-way split between the global alliances (Star Alliance, SkyTeam, and oneworld) in terms of routes between Europe and North America.
The European airports that will be most affected by the merger are Manchester, Madrid, London Heathrow, Paris CDG, and Zurich.
The merger will have the biggest impact on European competitors where American Airlines and US Airways gain the most market share and where the market leader has a relatively low share, such as Iberia and Alitalia.
The merger may result in branding and marketing benefits for the new American Airlines, potentially leading to the addition of frequencies or routes from Spain, Italy, and Ireland.

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.