The latest events in the expected direction in which the market was heading gives us new food for thought.
The European Commission has nodded through both Lufthansa´s purchase of 41% of ITA and AF/KLM ´s purchase of 19% of SAS with conditions not talked about. On the other hand IAG´s bid for 80% of Air Europa, which it did not possess, was refused despite the airline group acceding to major limitations on its operations at Madrid Barajas, in Europe and on routes to Latin America. This has proved "too much to ask" by the shareholders of IAG. Thus the bid was withdrawn with a €50 million penalty to Air Europa´s owners. So that changes the future prospects from now on.
One person pointed out that IAG was the most profitable airline group in Europe aiming for a 10 to 15% return on capital which the bond markets appreciated through the increased shareprice. What was not mentioned was that as long as the (other) airline groups remained just profitable, their real owners do not insist--- in the case of Lufthansa (the German Government is the decider(the governments of Belgium,Switzerland, Austria have no say in the matter). The Italian government (for ITA) will be included in that list in the not distant future.
As for AF/KLM, it is the French government which is the decision-maker. The Dutch have little say. For example, not long ago the Dutch government increased its share in the group up to near that of the French. This action irritated the French. The Dutch do not want to be left out nor be camp-followers --- but the real strategic decisions are taken by the French. For them and the Germans it is a question of power not profit. IAG has to satisfy the stock markets.
Why are things like this. The main countries to finance the European Union are the larger ones with greater economic power. That means in the EU advice is listened and adhered to from the Germans and French. Thus the operations of those countries´airlines were given the go-ahead. In the question of IAG the Spanish government does not have enough clout, while the Brits. do not count any more having decided to be outside the EU community. Thus the conditions under which IAG could purchase Air Europa became unacceptable. The only airline which would have benefited, at all, was Volotea, with routes transfered from Iberia in Spain. However, it would still have remained a minnow.
I suspect that the deal(behind closed doors) which was being brokered was that Air France received Air Europa while Lufthansa got TAP.
The rumour mill now states that IAG will make an effort to buy TAP to compensate its loss. Not only does the rumour mill say that Lufthansa is interested but also that the Portuguese government is thinking of not selling 100% as originally planned but a lesser share (unmentioned). We shall see.
- - - - - - - - - - - - - - - - - - - - - - - - -
At this point, I would like to show a small graph. This indicates population size with the subsequent suggested economic power of the country, but also the potential for "home created" passenger traffic..................
List of European countries by population
Source UN (World Population Prospects 2024)
Date 21 Aug 2024
Russia is the most populous country in Europe and the only one with a total number of humans above 100 mn.
This is a list of the 18 largest countries in Europe by population. Turkey is not included in the list.
.
Country/Region Population
2023 2024
Russian Federation 145,440,500 144,820,423 wants other allies
Germany 84,548,231 84,552,242 LUFTHANSA group
United Kingdom 68,682,962 69,138,192 IAG
France 66,438,822 66,548,530 AF/KLM
Italy 59,499,453 59,342,867
Spain 47,911,579 47,910,526 IAG, Air Europa, Volotea
Poland 38,762,844 38,539,201 LOT
Ukraine 37,732,836 37,860,221 at war
Romania 19,118,479 19,015,088 Tarom
Netherlands 18,092,524 18,228,742 AF/KLM
Belgium 11,712,893 11,738,763
Czechia 10,809,716 10,735,859 CSA goes to Smartwings
Sweden 10,551,494 10,606,999
Portugal 10,430,738 10,425,292 TAP
Greece 10,242,908 10,047,817 Aegean
Hungary 9,686,463 9,676,135
Austria 9,130,429 9,120,813
Belarus 9,115,680 9,056,696 allied elsewhere
In simpler terms this now indicates that the regular passenger airlines of the top 18 largest European countries which remain to be possibly taken over are
LOT Poland 38.5 million
Tarom Romania 19.0 million
TAP Portugal 10.4 million
Aegean Greece 10.0 million
plus Air Europa (Spain) 47.9 million
and Volotea (Spain) 10.4 million
and a selection from smaller countries like Serbia, Croatia and Bulgaria.
So IAG has few options in Europe, apart from Finnair. TAP should not even be considered as a target, however interesting the Portuguese language markets in South America and Africa might be. The EU will be sure to put very strong conditions on any possible union with TAP as it did with Air Europa. Why waste the time and effort?
The obvious choices are LOT or Aegean.
The Greeks have an interesting home market which by necessity is very active (island hopping). My bet, though, is LOT.
This airline is run by (nationalistic) Poles who can fix anything from leaks upwards and are being very ambitious. They already operate flights from Prague and Budapest, as well as Poland, to the disporas in North America. The Poles are already building a modern new hub in the centre of the country which would be excellent to complement London LHR and Madrid Barajas. Help them build up their markets, just as Aer Lingus has been helped to gain market share in North America by BA/IAG. IAG with such a merger(or takeover) would gain stronger presence in Eastern Europe, the Baltic area and South Scandinavia --- with Finnair, even better. It would be impossible to encounter with the EU authorities the same difficulties as would have to be shown to Lufthansa and AF/KLM were they rivals in any such merger/takeover.
List of largest airlines in Europe (Wikipedia)
https://en.wikipedia.org/wiki/List_of_largest_airlines_in_Europe
Apart from the "legacy" airlines mentioned there are other airlines which might not want to form part of any airline group. The biggest "low-cost" airline in Europe is Ryanair which has its subsidiaries including Buzz (Poland), Lauda Europe and Malta Air (Malta), and its UK subsidiary RyanairUK. The passengers flown in 2023 reached 181.74 million for the whole group.
The next biggest "low cost" carrier is Easyjet with its subsidiaries in the UK, Switzerland and Austria at 82.8 million passengers which it flew in 2023.
The third "low-cost" airline is Wizzair based in Hungary (60.3 million passengers in 2023) but with subsidiaries also in the UK and the United Arab Emirates. This seems to suggest that they see their principal area for expansion in the Middle Eastern countries, outside Europe. They might even have ambitions to fly to Pakistan, India and Bangladesh from the Persian Gulf as people from those countries provide the backbone of the labour force in the Gulf. The Arab states have also started up their own low-cost airlines so the competition should be fierce.
After those three airlines the other big low-cost airlines form part of the three big airline groups Vueling (short haul) and LEVEL(long haul) (IAG); Eurowings (short-haul) and Discover(long-haul) under Lufthansa;
Transavia is the subsidiary low-cost airline for both KLM and Air France. Vis a vis the public this is just one operating company but legally there are two, a subsidiary for each of the parents. These airlines of the three groups seem destined to be the vehicles for their expansion.
Apart from these six aforementioned airlines there are others eeking out a niche for themselves in the market. The biggest of these is Norwegian Air Shuttle (short haul)
while a new airline has arisen to take over the long haul services which that operator could not make work called, Norse Atlantic Airways. This flies from Oslo and then differing services from Paris, London and Rome, and sometimes Berlin. They mostly go to the west and east coasts of the USA together with some Caribbean islands and Bangkok as alternatives.
Norwegian flew 20.6 million passengers in 2023 while Norse Atlantic flew 980.000 passengers in 2023. The future for these two airlines is not clear as they will find it hard to maintain a presence in a highly competitive market. The best bet for Norwegian would be to link up with Easyjet to provide a stronger competitor for Ryanair.
For Norse Atlantic we will have to look at the other candidates in the long-haul low-cost market. Discover is Lufthansa´s candidate. LEVEL would be IAG´s candidate flying from Barcelona. In France we have two possibilities which fly mostly to France´s overseas possessions, in the Caribbean, the Pacific and the Indian Ocean as well as other former possessions in Africa.These are Frenchbee and Corsair both are attractive partners though might choose difficult to court.
The remaining airlines of any stature might well be Tarom, Air Serbia, Croatia Airlines, and Bulgaria Air but these are really minnows who add little or nothing to any grouping. The only two which remain, of any substance are Volotea and Air Baltic. Volotea we have seen before in this article. It is a Spanish airline which operates mostly in France, Italy and Spain from minor airports and has grown to 10.4million passengers(2023) which would be an interesting morsal for any airline. The remaining airline to mention is Air Baltic. This is based in Riga (Latvia) but has grown to serve all three of the Baltic States, plus Tampere (Finland) and Las Palmas (Gran Canaria). Its passengers carried in 2023 came to 4.54million.It is a very agressive airline seeking to maintain costs by only using A220 aircraft and extending its reach throughout the whole of Europe with particular emphasis in Eastern Europe. This is an interesting candidate for IAG to set up another low-cost carrier for the Northern half of Europe to complement Vueling in the Southern half.
Thus I see the European airline market for consolidation. Will it turn out the way I suggest - who knows? It will, however, still take some time to achieve and a lot could happen in that time, including game changing disasters. Let us see.
