Why Are Airlines Getting Closer Together?

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.