How O´Leary´s (CEO of Ryanair group) predications will come true.

Mr.O´Leary, CEO of the Ryanair Group, is always outspoken about the airline business. However, he is not to be ignored because many of the things he says will certainly, at least, have an influence on events in the business if not actually provoking a response from the market.

As we are at the beginning of August we are well into the summer season, or third quarter of the year. This is the make or break period for any airline. They have to make their money, sell their seats, during the next few weeks, or they will find themselves short on the readies to tide them over the lean winter period.If that is so then they will go to the wall and fail to make next year.

O´Leary has particularly targeted Norwegian as a likely candidate to go bust. However, things are no so simple as they appear to be. Let us look at the important players in the European market.
---IAG (Iberia, British Airways, Aer Lingus, Vueling and LEVEL) is the most profitable of the European groups.  
---Lufthanasa (plus Swiss, Austrian, Brussels Airlines and Eurowings) is well considered and in a strong position.
---AirFrance/KLM (plus Air France Hop, Transavia France and Transavia Holland) is dragged down by the Air France side of the business but is strongly supported by both French and Dutch governments so will not go to the wall. It is signing agreements with Delta Airlines for joint ventures and joint investments such as in Virgin Atlantic which is now under the control of both groups but principally Delta (with the maximum 49% permitted). Virgin Group has an interest but that is basically to ensure the continuence of Virgin receiving royalties for use of the name.
---Alitalia is still under the hammer but the Italian government will not let it go bust. Delta wants a part of it but is under the handicap of the 49% rule prohibiting non-Europeans investing in European airlines. The Italian government apparently wants Alitalia to have Italian shareholders (preferably of government owned companies or institutions) so that it can still have a strong influence in any development in the flag carrier. However, I do not see that coming to fruition as the Virgin Atlantic solution could be the better one for Alitalia, solving the 49% problem at a stroke. It looks like a never ending story.

So that  seems to be the situation for the three alliances in Europe. SkyTeam will strengthen its position with Virgin Atlantic and Alitalia and be preoccupied with both. Thus Lufthansa with Star Alliance and IAG with Oneworld will be waiting to make a move.

Before we look at the two big alliances let us ponder the three largest LCCs (not counting Norwegian).
---Ryanair: This group is reorganizing itself into a "holding company" just like IAG.  It maintains the Irish and British subsidiaries as before. However, the takeover of Laudamotion (from the demise of Air Berlin) means that Lauda will become a subsidiary focused on the German speaking market which has always been a difficult nut to crack. Ryanair Sun (the Polish subsidiary) is being renamed BUZZ aimed at Eastern Europe(the use of the name makes one ask if Ryanair has an eye on WIZZ as a takeover candidate). Also for cost reasons many flights are being transfered to the newly set up subsidiary, Malta Air, because of lower taxes and lower salaries. The group is probably too self centred at the moment in order to make the new structure work, so it will not go looking for prey. That is not to say the group would not take advantage of slots, aircraft or even an airline if it were to fall into its lap.
---Easyjet: This British LCC has had a Swiss subsidiary for a long time in order to operate from that country. Because of Brexit it has also set up a subsidiary in Austria to run its European operations. It, too, will be concentrated on making the new structure work so is unlikely to go hunting any airline. But just like Ryanair it would not be averse to picking up the bits and pieces of any airline that collapses.
---Wizz: This group is based at Budapest and the majority of its flights are to and from Central and Eastern Europe. A large number of flights run into the UK so it has set up a subsidiary in that country in order to protect its interests. Apart from that it has shown no movement or interest in another airline. This blogger still considers its best bet to be Volotea. Volotea is a similar airline flying into/out of secondary airports and is not really a fit with anybody else. The two are quite complementary with Volotea concentrating on Spain, France, Italy and Greece. Wizz on the other hand flies from those same countries but to Eastern Europe.

--Norwegian. This is the fourth LCC but needs a seperate mention. It is the only one to fly both short-haul and long-haul. IAG considered Norwegian a takeover target and so took a 4.6% shareholding in the airline. It tried, twice, to convince the Norwegian board to sell out but was rebuffed each time. It has subsequently sold its stake and repeatedly said it is no longer interested in the airline.  As a result it set up LEVEL to run both long-haul and short-haul LCC flights.  O´Leary insists that Norwegian is not going to last the winter. It did survive the winter of 2018-19, just, thanks to an injection of cash by Norway´s richest man. But will it last the next winter, 2019-20? The airline has certainly been cutting costs and even reducing routes

Copenhagen – Fort Lauderdale*                    even cancelling two: 
Copenhagen – Los Angeles*                                  London Gatwick - Las Vegas  
Copenhagen – New York JFK*                               Stockholm Arlanda - Orlando
London Gatwick – Chicago O’Hare*
London Gatwick – Denver
Oslo – Los Angeles
Oslo – Orlando
Paris CDG – Boston
Rome – Los Angeles*
Stockholm Arlanda – New York JFK 

The CEO, Bjorn Kjos, has stepped down to become an advisor as he considers himself "too old" for the task ahead. While the airline looks for a replacement CEO, the current CFO Geir Karlsen is taking his place in the interim.  

The measures taken suggest Norwegian is in dire straits. If Norwegian can survive the winter it might well have a strong possibility of maintaining its independence. However, as seems much more likely that in the coming months Norwegian seeks help in maintaining itself afloat then this blogger sees IAG or Lufthansa stepping in.

Normally Lufthansa would be considered too big a group to take over Norwegian. However, when a large number of employees are affected, important regional routes in Scandanavia would lose connections and large numbers of passengers would lose a meaningful offer of an alternative airline, then I think the European authorities might well permit the take-over to go ahead. The UK market would be important. Such a take-over would give Lufthansa a strong presence in the UK and might be welcomed. An IAG take-over of Norwegian would raise objections in the UK for the same reasons as too much concentration in the hands of one group (British Airways plus Norwegian). However, Lufthansa taking-over Norwegian would probably be at the price of SAS abandoning Star Alliance (to enter Oneworld?) This could be to the advantage of IAG and might even push SAS into merging into IAG. 

That is not so clear cut as it looks because we then have the case of Finnair. This airline is fiercely independent at the moment and looks like wanting to stay so.It seems content in Oneworld and would appear to be a clear candidate to merge into IAG. The same cannot be said for SAS as it does not appear to be so appealing to IAG. Thus IAG would fight for Norwegian (and not only to protect its own back yard). Even if it were successful in taking over Norwegian, IAG would have the problem of deciding what to do with it and LEVEL. This blogger considers it most likely to have Norwegian as the Northern European LCC while Vueling is the Southern and Mediterranean LCC. LEVEL would probably maintain some short-haul routes in Central and Eastern Europe while the logical thing would be for the long-haul routes to all handed over to LEVEL  to operate from European bases which do not compete directly with IAG´s own airlines.

---Returning to LEVEL it is an airline which is progressing well but less so in Paris than in Barcelona. That is principally because there is strong competition on the long-haul routes out of Paris. From Paris Orly LEVEL operates long distance flights across the Atlantic, mostly considered leisure destinations. The company has entered a crowded market with two established competitors, apart from the French national flag carrier, French Bee and Corsair. The first of these is tied up in an industrial group(The Dubreuil Group) together with Air Caraibes. This would probably make this group not so interesting and too expensive to take over. With Corsair that is not the case. After many years trying, in March 2019, TUI has managed to sell 53 per cent of the airline to German airline investor Intro Aviation. TUI maintains a 27 per cent interest in the company. Since investors wish to sell on their purchases in order to make a profit, I see this as an excellent opportunity to take over Corsair to incorporate it into LEVEL. Some destinations complement LEVEL in the Caribbean thus reducing the competition. Others extend the coverage in the Caribbean and North America, while adding other destinations in Africa and the Indian Ocean. Corsair seems to be the right company in Paris to help LEVEL achieve the critical mass to make itself an established name and provide a springboard to other leisure and business destinations South and West of Europe. The possibilities seem endless.

It should be pointed out here that at the weekends Vueling flies to Dakar and Banjul from Barcelona. Since these flights are to West Africa (a long way outside the normal operating area of Vueling in Europe) I would have considered them to be routes more appropriate for LEVEL. Since they are not promoted by Vueling then these routes could increase the offer made by LEVEL to make the airline more attractive.

Other flights which might well be considered in the realm of LEVEL would be those to Russia and the Eastern Mediterranean. Egypt, Israel, Lebanon and Jordan are not in Europe and might well be considered exotic enough to be delivered by LEVEL. Flights to Moscow, St.Petersburg and any other destination in that country could well prove more appealing to the public if not provided by a "crushed" LCC such as Vueling but by a long-haul operator like LEVEL.

If LEVEL did take over Norwegian then it would be concerned in turning a profit on the routes it has rather than opening new ones. Norwegian offers long-haul from...

Dublin                                London Gatwick                    Paris 

Barcelona                           Madrid

These could be considered a direct threat to other airlines in the IAG group.

Amsterdam                         Rome Fiumicino                    Athens 

These routes might well become points of conflict with LEVEL...........but also

Oslo                                   Copenhagen                          Stockholm

and Helsinki (to Tel Aviv)

Even if LEVEL did not take over Norwegian it would still be interested in routes from certain bases in Europe

With the new base becoming established in Amsterdam I see that the competition authorites in Holland have forced KLM to free up slots at Schipol so that Norwegian can fly to New York. If Norwegian can do it, so can LEVEL. We will have to wait and see how that can be built upon. The Dutch islands in the Caribbean offer a possibility.

As LEVEL expands I see it establishing new bases in certain countries. It is probably far too soon to think about the UK because of the uncertainty surrounding Brexit and the continued application of the APD tax – which will not change anything until it is abolished or other countries introduce a similar tax. However, Manchester and Edinburgh have been mentioned  as bases to offer from the UK outside London.

The next base to consider would be Rome. Vueling has joined battle there and established a fair sized number of destinations into/from the capital city. These would be feeder routes for a long distance LEVEL operation . Any action on this should be done sooner rather than later because it seems that Alitalia could be on the point of falling into the hands of Delta(and others) and they will be formidable competitors.

It has always been a surprise to me that no long distance carrier flies from Berlin. This is a must when Berlin Brandenburg opens in October 2020 but the preliminary establishment of a feeder network should be taking place now. 

Long distance flights from Vienna can be introduced at any point but LEVEL will want to ensure the feeder flights are in place before competing against Austrian Airlines. I do not see Easyjet nor Lauda offering long distance flights in the near future. Here LEVEL can steal a march on the competition.

Later on I see LEVEL opening a base in Athens but that will need an extended route network to be established which does not exist at present. 

We should not forget Switzerland also. A base or bases at Geneva and/or Basel could be possibilities to compete with airlines from Zurich. Maybe even by taking over an established Swiss airline such as Chair (the reincarnation of the Swiss subsidiary of Germania).

Outside of these airlines there are two large European ones to take into consideration. Aeroflot and Turkish Airlines are certainly large but not really considered European. To participate in any European airline they are subject to the 49 per cent rule. In that case they could only participate in airline consolidation in conjunction with other European airlines and/or investors.

Most of the remaining airlines of any size are mostly connected to the travel industry, selling package holidays etc. like Thomas Cook, TUI, Jet2 and so on.

The interesting airlines which could appeal are TAP and LOT. 

TAP would be a mouthful for IAG(Iberia). SkyTeam already has Air Europa flying to Latin America from Madrid and fits in well with the other members of that alliance. That seems to be its future. Oneworld has Iberia so I do not see the competition authorities accepting TAP entering Oneworld or IAG. TAP covers the Brazilian market quite thoroughly from Lisbon and is already in Star Alliance so I see no change there.

The last airline of a decent size is LOT Polish Airlines.This is already in Star Alliance and Lufthansa will fight to keep it. However, LOT is just what IAG needs. It is a full service airline covering a large part of Central/Eastern Europe, an area which has little coverage from IAG or Oneworld. LOT has made great strides in putting its house in order. It has even established a base in Budapest, to replace the full service airline Malev which went bust. It has looked East to establish connections to the Orient from Eastern Europe but more importantly it has crossed the Atlantic to connect to US cities where there is a diaspora of Polish and Hungarian communities. That shows some clear thinking, just like Aer Lingus, which should be harnessed. It cannot be anything but a big winner for IAG.

There are other airlines in Europe such as Air Serbia, Air Baltic, Pegasus, Tarom and others but they are not of a sufficient size to make an impact on the market. Some are members of the alliances most are not.
All this leads us to think that O´Leary Is right to suggest that that there will be movement in the market. The most likely outcome is a battle for Norwegian between IAG and Lufthansa. This in turn will provoke other take overs to really change the European airline market.