In its 9 month financial results IAG reported an operating profit of EUR451 million, double the profits in comparison to last year's same period. Although, IATA has estimated a 60 per cent decrease in airline industry profits this year it seems that large groups in Europe are more resilient than their competitors in a tough operating environment. (Lida Mantzavinou/AIR TRANSPORT NEWS)
Last week Lufthansa Group also reported a EUR578 million operating profit, a slight decrease in comparison to its last year's figures. With an agreement in principle of the sale of BMI to IAG, a consistently loss making business for Lufthansa, we expect financial results to be even stronger for both groups in the next two years.
IAG will be 'taking over' Heathrow, capturing up to 60 per cent of the airport's slots, as BMI is the second largest carrier at Heathrow holding 8.5 per cent of the slots. As Heathrow has reached capacity, it will be tougher for competitors to enter the international hub, and IAG will be having a strong competitive advantage.
The challenge for IAG will be to convince the regulators on the deal benchmarking Lufthansa Group that holds 66 per cent of the slots at Frankfurt airport and Air France-KLM that hold up to 60 per cent at Charles de Gaulle airport and up to 60 per cent at Amsterdam Schiphol airport. Furthermore, Lufthansa having got rid of the loss making business will be able to direct profits in investments on its other businesses that will be generating more revenues.
In an environment where aviation stakeholders are pushing towards liberalisation and removal of ownership and control restrictions, IAG is emerging as a role model and is driving the trend for more consolidation.
We believe that mature markets, such as Europe and North America, will keep up with this trend and witness more consolidation. Airlines will be eager to join one of the groups already formed (IAG, Lufthansa Group, Air France-KLM) or create a new group in an attempt to capture greater market share and drive profitability from long haul operations while facing strong regional competition from the low cost carriers.
Lida Mantzavinou, Consulting Analyst for Frost & Sullivan Aerospace, Defence & Security group
