Lift off: could airline consolidation continue?

The past decade has seen a cycle of consolidation in the airline industry with Delta Air Lines merging with Northwest Airlines, Continental Airlines joining United, among others. Recently, there have been discussions over a possible merger between American Airlines and US Airways, which would create America’s largest airline in terms of number of employees and second largest in terms of operating revenue. Many of the largest carriers have been through bankruptcy and have performed poorly in relation to low-cost airlines which have attractive profit margins. Therefore cost efficiency can be achieved in addition to elimination of overlapping routes.

The European Union (EU) is pushing towards reforming US rules under which foreign companies can only own 25% of voting shares in a US airline to accept similar ownership rules to the EU (where 49% voting shares of a European airline can be owned by a non-European company). One of the reasons for pushing towards consolidation is the additional capital brought in needed to renew existing fleets. Many European airlines are facing losses this year in comparison to their Asian and US peers based on the economic impact of the recession. Therefore the EU is aiming to form a powerful alliance between American and European carriers, which could act as a catalyst for a more global consolidation of the airline industry.