Air transport: following the era of low-cost airlines, a wave of takeovers amongst carriers

The European air transport sector has entered a new phase of consolidation. After more than a decade characterised by the growth of low-cost carriers, competitive pressure and the impact of the pandemic, the sector is redefining its balance through acquisitions, strategic alliances and greater market concentration. The objective is clear: to achieve a scale capable of sustaining investment, improving profitability and tackling an increasingly complex operating environment. Whilst demand for flights continues to grow and margins remain under pressure, the continent’s major groups are focusing on acquisitions to increase their operational scale and strengthen profitability.

This is a trend that began some time ago, but is set to gather pace following the deal that will see Apollo Global Management take control of the British low-cost airline easyJet – one of the most significant events in European aviation in recent years. The deal, which values the company at around £5.7 billion, is not only one of the most significant acquisitions ever carried out in the European low-cost sector: above all, it marks the return of major private equity funds as key players in the consolidation of the aviation industry, a process hitherto driven predominantly by industrial airlines. Major groups such as Lufthansa, IAG and Air France-KLM have pursued an acquisition strategy aimed at expanding their networks and strengthening their presence at the continent’s main airports. Apollo’s entry alters this pattern, introducing a new player with different financial approaches and investment horizons.

The transformation of easyJet into a company controlled by a financial investor could enable strategic decisions that would be difficult to pursue under pressure from the stock markets. Apollo has already outlined some key directions: further development of the package holiday business, an increase in ancillary revenue, investment in technology and potential commercial agreements with long-haul carriers, such as the one with Richard Branson’s Virgin Atlantic. The aim does not appear to be a traditional restructuring based solely on cost-cutting, but rather an increase in profitability through diversification of revenue streams. This strategy is consistent with the evolution of the European low-cost model, which is becoming less and less reliant on ticket prices alone.

The race is on: Air France-KLM is keeping a close eye on the privatisation of TAP Air Portugal and has already strengthened its presence in Northern Europe by acquiring a stake in SAS. Interest in the Portuguese airline has also been expressed by Germany’s Lufthansa, which is continuing its acquisition strategy following its takeover of Ita Airways. In Spain, Turkish Airlines has acquired a 45 per cent stake in Air Europa.

‘Big is beautiful’ is a phrase that, in the aviation industry, takes on a strictly economic meaning. The larger the group, the greater its ability to spread fixed costs, negotiate favourable terms with Airbus and Boeing, invest in digital technologies and cope with operational shocks. The difficulties that have emerged in recent years – from engine shortages to delays in aircraft deliveries, and rising maintenance costs – have further favoured operators with greater financial capacity. Apollo’s entry changes the rules of the game: consolidation through financial capital, favouring operators with greater investment capacity and easier access to capital markets.