When Flybe became Europe’s first casualty of the year, passengers scheduled to travel with the financially struggling airline could be forgiven for thinking they had déjà vu. The failure of the UK regional carrier was the second time in less than three years the brand had gone under, with a previous incarnation folding in March 2020.
Flybe’s demise was swiftly followed by that of Norwegian LCC Flyr, which had been unable to stem mounting losses in the face of strong competition in the domestic and short-haul space.
The respective networks of each will be replaced, but the loss of two European airlines presents an uncertain start to 2023. Only a handful of the region’s carriers disappeared during the previous 12 months and their absence caused barely a ripple—few miss Germany’s Tel Aviv Air, for example, which lasted all of three months.
Pandemic-induced debt, rising inflation, high fuel prices and the fallout from Brexit will continue to test Europe’s financially shakier airlines as the year progresses, but the uptick in travel during the northern summer season will provide some respite.
Consolidation is also happening through a pinch of M&A activity. International Airlines Group (IAG) agreed to take a 20% interest in Air Europa last August; Lufthansa is buying an initial minority stake in Italy’s state-owned ITA Airways, the successor to the Alitalia soap opera; and Portugal’s government is mulling the privatization of flag carrier TAP Air Portugal.
Ryanair Group CEO Michael O’Leary foresees an “inevitable” period of consolidation as larger network carriers seek to bolster their operations and weaker players vanish.
So, is consolidation an inevitable next step? While perhaps not inevitable, it seems necessary if Europe’s carriers are to grow, invest and keep pace with their international counterparts.
In 2022, the top five intra-North American carriers commanded a 78% share of capacity, versus just 40% for the top five intra-European airlines, emphasizing the fragmentated state of the market in Europe.
As such, IATA figures show that North American carriers realized profits of about $9.9 billion in 2022 and will achieve $11.4 billion in 2023. In contrast, European airlines saw a loss of $3.1 billion last year and profits will be around $621 million this year.
However, while cross-border deals in Europe have so far been driven through holding company structures, the ability for further consolidation will likely be dictated by national interests and EU competition rules. Airlines may also be wary of taking on risk in what remains a tough operating environment, coupled with the challenges of navigating cultural differences and labor laws.
Those factors will help maintain a highly fragmented European market. But that needs to change, and change fast, for European airlines to compete internationally and avoid the path to insolvency.
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