With all the continued talk of mergers both in Europe and in the United States, the average observer might think a dramatic consolidation is taking place in our industry. In fact at the recent Geneva Forum on Aircraft Finance and Commercial Aviation, a poll revealed that 85% of participants there predicted an increase in consolidation over the next two years.
But the truth is, the market is actually not consolidating. It’s going in the other direction. If you take a close look at the total number of airlines in operation, as well as frequency growth in the marketplace, you’ll see that nothing could be farther from the truth.
What we’re actually seeing is that the number of airlines in the world has increased by 150% over the past 20 years, and frequencies continue to grow by about 5% a year. We also continue to see growth in city pairs, or nonstop markets.
This chart shows the vitality of the airline marketplace. The reality is, while consolidation talks go on, over the last 20 years we’ve seen continuous growth in the number of carriers.
Over the last 10 years, approximately 1,300 new airlines entered the industry and about 850 airlines exited it. Since more airlines enter the industry than exit in any given year, the total number of airlines increases.
So what’s going on? Are these things inconsistent with the talk of consolidation and possible airline mergers? Well, first of all in terms of “consolidation,” yes, we’ve seen a few airlines over the past several years consolidate – KLM and Air France, for example, and U.S. Airways and America West.
But overall we’re really seeing growth in the number of airlines worldwide. Growth that is primarily fueled by new business models, whether they are additional low cost carriers, all-business class airlines, new regional carriers, or other models.
It’s a more diverse marketplace today than it’s ever been. And as the market gets bigger we expect this trend to continue.
New and innovative airline business models create additional value for passengers and are then incorporated by other airlines. In the end, passengers are better served with more convenient travel for lower fares, and in many cases, in more comfortable surroundings.
Airlines are looking for a way to better compete in light of rising fuel prices and new outside competition as markets liberalize. So as we go into the future expect to see more new airlines, new business models, new ideas - a constant and continuous increase in the airlines operating around the world. That growth brings in new people, new ideas, new technology, and that helps make all the airlines better.
And for us, it helps to further diversify our customer base. Which helps our position in this very cyclic business.
As we look to the future, there will be some consolidation. But that’s going to be offset by new opportunities for new airlines and new business models as the market gets larger.