This has been a constant in air transport since the airlines agreed to cooperate by exchanging tickets
through the “Interline” agreements which date back to 1948 if I remember correctly. But since this
sector of activity has entered the competitive world, companies have been getting closer to each
other not only through agreements, but above all through equity investments and, even takeovers.
This is how huge groups were created, first in the United States with the emergence of 3 gigantic
groups: American Airlines, Delta Air Lines and United Airlines. Europe followed the same path and
the Lufthansa Group, IAG and Air France/KLM were created in the early 2000s. The same strategy
continues in Africa with Ethiopian Airlines taking over ailing airlines in Togo, Congo Kinshasa, and
possibly Tanzania. Asia is coming with the takeover of Asiana by Korean Air and the merger of the
Indian carriers Air India and Vistara. Everyone is getting involved and even the remaining state
companies are doing the same, ITA Airways has been taken over by the Lufthansa group, SAS is
gradually moving into the orbit of Air France/KLM and TAP Air Portugal is looking for a buyer. But is it
as profitable?

Why do profitable transporters or those in the process of being profitable rush into the arms of an
already constituted group? In other words, why did the Italian state sell ITA Airways to Lufthansa and
why does TAP Air Portugal want to find a buyer? As far as I know, both of these operators are of
reasonable size. ITA Airways operates 101 aircraft, serves 70 destinations and achieves 2.4 billion
euros in turnover and TAP Air Portugal has an extensive network of 94 stops served by a hundred
aircraft, has a turnover of more than 4 billion euros and has been making a profit for more than 2
years after a difficult restructuring. How do good-sized carriers, who are very representative of their
respective countries, have to gain from blending into a very large multinational and multicultural
whole?

Of course, some opportunities were offered towards the end of the 2010s when companies that
were a little fragile economically, sometimes victims of inefficient management, had to file for
bankruptcy. This is how the Swiss and Belgian national airlines entered the German fold. The
countries have lost a diplomatic tool and an important image vector and the strategy obeys the
imperatives of the buying country. Of course, the selling States think they will keep control of their
former national airlines by remaining shareholders, but in reality they can no longer influence the
future of the airlines.

Mergers between carriers have a first advantage: the coordination of operating programs between
partners allows serious operational and economic gains, but this only lasts for a short time. Once the
reorganization of the networks is over, the frustrations begin. The absorbed company will have to
modify its computer system to make it compatible with the buyer and this is not an easy task, it will
be forced to change its alliances to join those of the acquiring group, and it will have to submit to its
management rules. How then can we keep our own culture, the one in which it was built?

I am told that mergers are essential and that a medium-sized carrier, such as those I have just
mentioned, has no chance of existing alone. The question deserves to be examined. Commercial
agreements between carriers are not new and it is common to use the famous “code shares” to
complete a network, although I consider this practice to be at the limit of what is acceptable for
customers who, thinking they are buying one product, end up consuming another, sometimes very
different one. And then the merger leads to an increase in organizational meetings, which are not
always compatible with time savings and the proper use of management staff. Finally, it is still
possible for each carrier to distribute itself in all countries of the planet using the tools and
specialized companies at their disposal, all at variable costs.

Finally, it should be remembered that the US consolidation has not been without damage. After
absorbing all the small and medium-sized operators, the 3 giants I mentioned have all filed for
bankruptcy. The same story has happened in the past with the SR Group, which after buying
everything on the market had to be liquidated, and closer to home, Etihad Airways experienced the
same misadventure and the Emirati operator only narrowly escaped.

You don’t have to be fat to be beautiful, and freedom also comes at a price.

There was a time, not so long ago, when Nordic airlines were the envy of other European operators.
It was the time when SAS (Scandinavian Airlines System) could be named the best airline in the world
in the mid-1980s and when Finnair was weaving its network between Europe and Asia by transiting
passengers through Helsinki. It should be remembered that these Nordic companies are among the
oldest in the world. SAS was founded in 1946, Icelandair in 1937 and even Finnair in 1923.
Despite difficult climatic conditions and very limited domestic markets, at least in terms of the
number of potential customers, these operators have managed to stand the test of time by
becoming models of regularity and customer reception. Unfortunately, times have changed a lot,
except for Finnair, which seems to be doing well.

Like all traditional operators, these airlines took the full brunt of the assault on “low-cost” carriers in
the mid-1990s, when European airspace was opened. The new entrants, with their model of minimal
services, additional revenues, modern aircraft, and staff managed without bearing the weight of
seniority, have been able to display totally unbelievable or even uncredible prices to traditional
carriers. The latter were used to selling a high price to a limited but loyal clientele a product that was
expensive to operate but which had proven its reliability. However, here we are, on their markets,
individuals often from foreign countries capable of operating on their territories by charging rates
that the traditional companies were unable to compete with because their production costs, their
mode of operation and even their culture were incompatible with the new proposals.

So, the old operators tried to resist and let’s say it they did so with quite a bit of success until the
damage caused by Covid. SAS, to name but one, found itself in a very difficult situation with the great
complexity of a capital split between 3 countries, one of which, Norway, announced its withdrawal.
And no one has come forward to join a company considered to be aging, even if this is not true. This
is what led it to fall under the Peter Pan forks of Chapter 11, which, by the way, allowed it to
restructure, but also to attract the Air France/KLM group, largely saved by public funds, to become a
conqueror again. Thus, the fierce independence of SAS was largely dented by the fact that it
belonged to the Franco-Dutch carrier.

In the middle of the Atlantic, in Iceland, the “low costs” had to bend the knee to reality. While
Icelandair continues its good way, the new entrants only make a brief visit. Recently, on September
25, the company PLAY, created in July 2019, filed for bankruptcy and stopped its activities almost
without notice. Its model was to sell transatlantic flights at discounted prices with a stop in Reykjavik.
Of course, the geography was respected because almost all flights between Europe and North
America pass over this island. Except that Icelandair uses the same model but using traditional
methods, in particular in terms of its distribution method. It may seem old-fashioned to continue to
go through GDSs and travel agents, except that to free yourself from them and penetrate the market,
you have to make considerable commercial investments just to buy positions in social networks. And
customers are starting to be wary. They no longer want to buy tickets without finding their carrier,
especially since these new companies are often undercapitalized and only have the cash flow built up
by customers who are forced to pay for their tickets very far in advance to benefit from fares that are
unable to bear the cost prices. This is how PLAY customers will always be able to frame their ticket,
which will make them a bitter memory.

The same adventure happened to the passengers of WOW, also an Icelandic company, created in
November 2011 and which was liquidated under the same conditions as PLAY on March 28, 2019. We
could also mention PRIMERA AIR, which filed for bankruptcy on October 2, 2018, or even the long-
haul part of NORWEGIAN, which was also shut down in 2020.

That’s a lot. The reputation of Nordic carriers for seriousness is very seriously dented. For a long time,
southern European airlines were singled out for their erratic management, now operators in
northern Europe are facing the same symptoms. Air transport is a particularly difficult activity and its
growth should not make us forget that to launch a new carrier, you need to have strong backs.