The first part of the 21st century has been a turbulent time for the aviation industry. The past twenty years have seen it all, from more airline consolidation, to major disasters, to more bankruptcies.
The former is naturally quite a worrying prospect for some, but how dangerous is it really? Is it even dangerous? And when does airline consolidation make sense?
Many people are worried by the rise of the three major airline alliances– Star Alliance, Oneworld and SkyTeam, which aren’t owned by any one individual or company.
So the prospect of many smaller airlines banding together to become one large airline, or several larger airlines coming together to become one, is a scary prospect.
In the 21st Century, some airline consolidation does make sense. Full consolidation, will have its own drawbacks, whilst no consolidation will lead to airlines going out of business at an even bigger rate than they are already!
However, there are people who would disagree with this. So why is/isn’t airline consolidation good/bad for the aviation industry?
Why it doesn’t make sense
People have many worries when it comes to any form of consolidation, as it brings back memories for some (those who’s parents lived through the Gilded Age or those who didn’t live through the Cold War). There are also other concerns, including:
Too far
Some people worry that once we allow airline consolidation, it will continue to grow. It will not stop until someone has to step in and say “This has gone too far!”
They worry that once they let some consolidation, it will lead to the airlines wanting more. If they approved the previous multibillion takeover, why won’t they allow it this time?
There is also the concern that once this is allowed in the aviation industry, it will set a dangerous precedent in other industries.
Once the aviation industry is allowed to consolidate, how will the media industry and the financial services industries react?
They have been prevented from consolidating any further, so why should aviation industry bee given preference?
It’s already too consolidated
Some people will point to the fact that the airline industry is already incredibly consolidated as it is. They will point to studies and data that talk about the US aviation market- mainly the statistic that shows that 74% of the US commercial airline industry is controlled by only four companies.
They will also point to the fact that the manufacturing side of the business is controlled by two main companies- Airbus and Boeing and that business jets and light aircraft are controlled by two main companies- Textron Aviation for light aircraft and Gulfstream for business jets.
They argue that allowing any further consolidation will only backfire on consumers, who will be forced to pay out a higher price, for the same (or less) service as they did before!
Job loss
This is a favorite of politicians the world over. Whenever there is any form of consolidation, no matter how big or how small, there is some job loss.
Some people worry that if the government were to allow more airline consolidation, it would lead to more job loss than there would be if the airlines went bankrupt!
They argue that if the government allowed for airline consolidation to happen, yet didn’t provide support and/or retraining for those who are affected by the merger, they would be failing in serving the people as they claim.
Higher ticket prices
I have touched on this briefly. If there were less airlines in the industry, it would mean that there would be less choice for who you could fly with. This means that instead of five or six companies fighting to get you to fly with them, by using the lowest prices possible, there’d only be two or three.
This would mean that these companies would increase the price of their tickets.
This would mean that we, as the passengers would be forced to pay a higher price. Even when we aren’t getting anything for it, or we are losing leg room and other services previously available to us.
Why it makes sense
There are also people (including myself) who argue that some, or even complete, consolidation in the aviation industry is not just needed, but necessary for the aviation industry’s survival!
Prevents massive collapses
In 2019 alone, we saw more airlines collapse than any other. Most of the time, these airlines were low cost carriers, but a few were your typical-style airline.
By allowing some airline consolidation, you allow there to be a buffer between airline collapses and continued growth. The airline industry is notorious for its lack of profitability for most of the industry’s history, with it only becoming somewhat profitable in recent years.
The reason for this is due to airline alliances and airlines consolidating into larger airline consortiums such as International Consolidated Airlines Group (IAG) and others!
This prevents massive disruptions to passengers when the airline collapses, as can be seen by the collapses of Thomas Cook and Adria Airways.
Stops job loss
Yes, some people will lose their jobs in the short term.
But, which would you prefer: five hundred people losing their job, who can get jobs at other airlines quickly? Or five thousand people losing their job, when it can be avoided months or even years before?
Chances are that you responded with the first option.
So whilst some people do lose their job, they are easily able to find a new one within a matter of months. And plus, it stops thousands more from being disrupted and losing their jobs also!
Cheaper in the long run
This one, some people have a major problem with, as some people believe that there isn’t sufficient evidence to support it.
Some people believe that airline consolidation will lead to cheaper prices in the long run, even if they are more expensive in the short term.
They believe that when two or more airlines merge together, they are able to get a hold of the other routes, and combine them together.
Whereas previously, you had to go from London to New York via airline A and then New York to Seattle via airline B in order to get to Seattle, which means you could wind up losing your bag.
Now, you are able to access both flights on airline AB, which means you won’t lose your bag, and there won’t be extra handling fees that the airlines need to pay one another.
This means your ticket price will be much cheaper in the long run, after the initial consolidation period has calmed down!
Streamline flying
Before, the two airlines were competing, not just in getting enough passengers, but also to get more slots at different airports. Since airline consolidation happened, this has been more streamlined, as there are now less bidders. Whereas previously, there may have been twenty bidders, there are now only five.
This means that the winning bid will be less, which means that the airport fees will be less, which has a knock-on effect until the aforementioned ticket price is cheaper for you as a passenger!
Airline consolidation will also mean that there are more aircraft, which will lead to more people being able to fly. This is because both airlines will have aircraft on order, or even to be delivered soon after the airline consolidation is finalized!
Does airline consolidation make sense?
Personally, I would say that a small amount of airline consolidation- to the point where all of the positives are touched upon, and very few, if none of the negatives are touched upon, is OK.
I would say that as long as there is some government oversight, such as an anti-monopoly agency, it will be good.
This is to prevent someone like IAG from buying out Lufthansa Group and then forcing prices through the roof as so many people fear!
What are your thoughts? Should airline consolidation be allowed? Why or why not? Tell me in the comments!
Image courtesy of Tomás Del Coro via Flickr