Airline Industry Consolidation: Experts Weigh in on the Future

Strategic Insights -

The airline industry has long been calling out for consolidation, but various barriers have hindered progress. Recently, Ryanair withdrew its bid for Aer Lingus, but remains committed to buying a fellow Irish rival. This development is part of a series of potential takeover deals in the industry. Qantas in Australia has received a leveraged buyout from Macquarie, raising questions about whether these deals will take off in 2007. CNBC's Bill Ridgers, chief travel and tourism analyst with EIU Industry Wire, shares his insights on the industry's consolidation prospects.

Key Takeaways:

  • The airline industry is desperately in need of consolidation, but various barriers, including regulatory outlook and E.U.-U.S. Open Skies deal, hinder progress.
  • Without Chapter 11 protection, the U.S. airline industry would likely see at least one big legacy airline go bankrupt.
  • The industry treats airlines as a special case, often providing protection due to their importance in the national economy.
  • Consolidation is expected to increase after the U.S. and E.U. agree on the Open Skies deal, which will pave the way for consolidation amongst national flag carriers.
  • Oil prices constitute 22% of airlines' costs, making jet fuel prices a significant concern for the industry.
  • Airlines will need to cut costs in other areas to remain viable while high oil prices persist.

Statistics:

  • 50% or more of the U.S. airline industry's capacity has been in Chapter 11 over the last few years.
  • Oil now constitutes 22% of an airline's costs.
  • Without Chapter 11 protection, at least one big legacy airline in the U.S. is likely to go bankrupt.

Sources:

  • CNBC/DOW JONES BUSINESS VIDEO ANALYST INTERVIEW MICHELLE CARUSO-CABRERA, CNBC ANCHOR
  • BILL RIDGERS, CHIEF TRAVEL & TOURISM ANALYST, EIU INDUSTRY WIRE
  • ROSS WESTGATE, CNBC ANCHOR
  • MAURA FOGARTY, CNBC ANCHOR
  • CNBC/Dow Jones Desktop Video, LLC
  • Voxant, Inc.