Airlines Set Course For A Wave Of Mergers
THE tie-up between British Airways owner International Airlines Group (IAG) and BMI is set to herald a wave of airline mergers as carriers prepare for a rocky ride in 2012.
IAG's deal to buy BMI from Lufthansa for £172.5million, unveiled last week, may be the first of several in the industry as airlines seek alliances to ride out a stormy year ahead, experts say.
IAG, formed from the merger of BA and Iberia, plans to use BMI's lucrative take-off and landing slots at Heathrow to expand its long haul business.
It is thought likely to buy other airlines, with possible targets including Portugal's TAP and Ireland's Aer Lingus.
Transport analyst at Charles Stanley, Douglas McNeill, said a string of airline collapses in 2008 removed slack from the industry, but more mergers were likely.
"I think there will be further consolidation," he said.
Global industry body IATA has reduced profit forecasts for the industry in 2012 to £2.25billion from £3.2billion.
It said aviation could suffer losses of more than £5.15billion if the eurozone's problems spark a full-blown banking crisis.
Airlines have been preparing for the tough times ahead by cutting capacity.
Regional carrier Flybe has removed six per cent of its winter capacity and does not expect substantial economic growth next year. It said things should pick up eventually and is eyeing potential acquisitions as cash-strapped flag carriers sell regional businesses.
Flybe chief executive Jim French said the industry was still restructuring. "Airlines losing money are deciding they can no longer do so and that offers opportunities," he said.
Ashley Steel, KPMG's global chair of transport, said people were taking fewer holidays, hitting no-frills carriers. European and American budget airlines were likely to take the hit rather than those in the booming economies of China and south east Asia.
Steel said global economic woes, particularly eurozone problems, were likely to threaten smaller budget carriers.
Bigger companies like Air Berlin, Ryanair and easyJet should survive by offsetting falls in leisure travel with business passengers.
They may also benefit from less competition as rivals go out of business, although high oil prices and higher taxes were threatening budget flights. When no-frills flights began, oil prices were about £19.30 a barrel, rather than around £64.40 a barrel or more now.
Steel said: "2012 is going to be a tough year, possibly the toughest in a while. You'll see some distressed airlines and that will drive consolidation." London needed "an effective and efficient hub airport" quickly if it was not to lose out to other European hubs like Frankfurt, Steel said. The idea of a Thames Estuary airport is gaining popularity, but it could take up to 30 years to build and a third runway at Heathrow was needed.
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