Fox – sly.  Trots – left-leaning (Trotsky) plus its more insalubrious meaning. 

Foxtrots – leading the industry in a dance.

August 06 2010


Airline groups. Together we fail.



ITH one exception, all three of Europe’s big airline groups would have been better alone, in terms of seats sold. This is despite almost constant affirmation in the market of the opposite – that consolidation/alliances/mergers bring tangible growth benefits.

In 2008 seat sales on Air France the airline fell 1%, see table, but the fall for its 3-airline group was 6%. The single exception for our analysis was in 2009, when the airline AF fell 4% and the group fell only slightly. This was primarily thanks to Alitalia’s partial recovery from a disastrous 2008.

At British Airways in 2008, the fall in seat sales at the airline was 4%. But with what was to become its new partner, Iberia, the fall became 8%. And in 2009 in the first year of togetherness, BA-alone counts were flat, but counts with Iberia were down 4%.

At the 5-airline Lufthansa group, the mother airline managed a 1% increase in 2008, but adding in results from its partners, resulted in a fractional fall for the group. In 2009, Lufthansa’s 3% fall was made worse, pushing the group’s fall to 5%.

These disappointing falls for the three groups might begin to reverse as general economic activity recovers from the 2008/9 downturn, and the (over-stated?) synergies kick in. But we wonder about Alitalia, which to us still looks unreformable in operational terms, although AF may be able to improve sales and reduce operating costs.

The bigger question is Lufthansa – could it became another Swissair? I believe an important reason for Swissair’s failure was that it believed because it ran a good airline, it could also run other airlines well. It was proven wrong. Other elements were over-confidence in its abilities, and buying into loser-airlines such as Sabena.

Lufthansa shows some of these ‘character traits’, including buying into poor airlines. Most obviously in the case of BMI (ne British Midland), whose traffic fell apart after the Lufthansa takeover. Did it buy growth before the takeover to make it a more attractive company, and did Lufthansa fall for that?

Also weak is Brussels – which took over the Belgium market from Sabena. However, even if a new airline, it had none of the structural inefficiencies that Sabena had.

And then there is Lufthansa’s response to the current driving force in Europe aviation – low-fare-airlines. Lufthansa has its own, Germanwings (data not included here), but GW’s results have been weak. A 6% fall in 2009, compared with 3% growth for a dysfunctional Air Berlin, 3% for Easyjet, and 13% for the popular (with passengers, not the travel-industry intelligentsia) Ryanair.

Is Lufthansa taking some low-fare market growth that might (in profit terms) be better with GW?

Seats sold on main airline groups, 2009

Airline No,mn Growth,%
Air France 47.9 -4.1
  +KLM 70.3 -4.8
    +Alitalia 91.5 -0.4
British AW 32.3 0.0
  +Iberia 52.8 -4.3
Lufthansa 53.2 -2.7
  +Swiss 66.8 -1.7
    +Brussels 71.5 -2.2
      +BMI 78.9 -4.3
        +Austrian 87.4 -4.5

Notes: Extrapolations by TBA from AEA data. Source: Association of European Airlines, Travel Business Analyst.

The Fox