Airline consolidation, why Europe lags behind the US

Ally to survive. These were the words of the leading European airline CEOs at a meeting in Brussels on the eve of the letter sent by the European Commission on the Lufthansa-Ita Airways merger. From low-cost companies - not involved in merger operations - to national champions, many were convinced that in order to beat competition from the American giants, Europe must change pace and quickly start the process of consolidating its skies.

A process that started with difficulty 20 years ago, but despite the efforts, the European airline industry remains fragmented when compared to the US where the four major airlines control 80 per cent of the market while Europe stops at around 54 per cent. "If we do not start consolidation in Europe, we will destroy the airlines in Europe," said IAG CEO Luis Gallego. He is a party to this, since he has been waiting for months for the go-ahead for the merger with Spain's Air Europa that has been underway for some time.

IAG, the holding company that controls British Airways, Spain's Iberia and Vueling, and Ireland's Air Lingus, is awaiting the decision of the European Commission's vice-president for competition, Margrethe Vestager, who, as with Ita-Lufthansa, has launched an investigation into the merger, since the Spanish market risks being concentrated in the hands of these two groups: according to data from the aviation analysis company Cirium, on the Spanish domestic market the IAG group - through Iberia, Vueling and Iberia Express - has 54.1% of total routes. Adding Air Europa's flights, the merged airline would control 64.2% of the domestic offer in Spain.

Looking at intercontinental flights between North and South America, the same database shows that in June only Iberia and Air Europa controlled 56.7 per cent of the flights departing from Madrid to these two airlines. A dominant position that will inevitably have to lead to a divestment of flights, in which direction is unclear at the moment. Since it received the information on the merger on 11 December 2023, the European Commission has 90 days to decide, which means that the final decision will be published on 7 June at the latest, unless it is extended for a maximum of 20 days.

IAG, meanwhile, has come forward to take over another company also from the Iberian peninsula, the Portuguese TAP Airlines for which the government has decided on privatisation, but has not yet published the details. Lufthansa and Air France have also come forward for TAP, with Air France ready to fight IAG for excessive dominance if the European decision should tilt in favour of the Anglo-Spanish holding company. Lufthansa's position, on the other hand, is wait-and-see. It is known that the German carrier wants to grow in South America, but it is difficult to think that it could acquire both Ita Airways and Tap: the latter could become attractive to the Germans should the merger with the Italians fail.