Consolidation ahead for the Airline market?
Published on: 26/11/2018
Do the rumours swirling that Virgin Atlantic has its eye on Flybe, indicate that consolidation is gathering pace in the overcrowded Airline market?
Flybe is the latest airline to creak under financial stress and last week announced it was putting itself up for sale. High fuel prices and continued weakness in the pound has put many UK airlines under pressure. An ongoing price war, as carriers look to fill seats, has only exacerbated problems for struggling companies.
Of course, Virgin Atlantic has had previous flirtations with regional routes. It is only four years since the airline shut its Little Red subsidiary, it’s first attempt to compete in the UK domestic market. So why are they looking at Flybe?
Flybe, despite its obvious financial weakness remains one of the UK’s best-known airline brands and with a share price of just £20m it wouldn’t be a major spend for the long-haul carrier.
But the real jewel of the deal for Virgin could well be access to valuable take-off and landing slots, especially at Heathrow. Many slots at the UK’s largest airport are ring fenced for domestic flights. Merging the two companies could provide a valuable “feed in” of passengers onto Virgin’s long-haul hub network from smaller regional airports.
More and more of these deals could come up over the next few years according to market analysts Plimsoll. Our latest assessment shows how UK carriers compare to their international counterparts:
- 5 companies are rated as “ripe for takeover”
- 11 airlines are losing money
- 11 companies are showing signs of financial distress
- Growth in the market is 9.4%
- Average profit margins are -0.6%
- 58 companies are rated as “ripe for takeover”
- 104 airlines are losing money
- 138 companies are showing signs of financial distress
- Growth in the market is 7.3%
- Average profit margins are 2.3%
The airline market has lost Monarch and Primera in the past 18 months as the weight of economic and political uncertainty weighs on airlines and their fragile balance sheets. There are clearly too many companies chasing too little market and consolidation is now long overdue.
Virgin itself is in protracted negotiations with Air France-KLM and Delta. With losses of £28.4m in 2017, it needs to be part of a larger, better resourced group.
Plimsoll produces continually updated analysis based on the Global and UK Airlines market. Subscribers can access this level of company and market intelligence and can see these trends and developments before anyone else involved in the industry. More information regarding Plimsoll’s assessment of the Airline market can be found here