European

22 January 2019 airlines Corporates

EuropeanEurope’s top five airlines carried more than half of Europe’s passengers in
airlines
2018
Europe’s top five airlines carried more than
half of Europe’s passengers in 2018
Europe’s top five airlines crossed the 50% threshold in their combined share of the
region’s passenger traffic in 2018 as low prices and overcapacity put smaller
Analysts
carriers under intense financial pressure, often forcing them out of business.
Sebastian Zank, CFA
Figure 1: Overview of major consolidation activities of European airlines
+49 30 27891 225
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s.zank@scoperatings.com
M
Werner Stäblein
?
+49 69 6677389 12
M A A A w.staeblein@scoperatings.com

Azza Chammem
+49 30 27891 240
a.chammem@scoperatings.com
A F F A

Media
Matthew Curtin
A F A
+33 6 22763078
m.curtin@scoperatings.com
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A A B Related Research
Flight paths diverge as smaller
carriers face credit squeeze,
A A A A Nov 2018

Europe’s airlines brace for more

consolidation, Jun 2018

Trump Tax Reform to Spur

? Competition on Transatlantic
A
Routes, Feb 2018
European Airlines - Growing
A Need for Consolidation?,
Sep 2017
A

A A

Scope Ratings GmbH

Lennéstraße 5
10785 Berlin

Phone +49 30 27891 0

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info@scoperatings.com
www.scoperatings.com
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

Key A Acquisition M Merger B Breakup F Failed transaction Default Bloomberg: SCOP

Source: Scope Ratings based on market information

22 January 2019 1/4

 European airlines
Europe’s top five airlines carried more than half of Europe’s passengers in
2018
TOP5 airlines increased
European market share from
48% to 51%
Fate of Flybe, Alitalia and Adria
Airways still uncertain
22 January 2019
Lufthansa leads gains in market share among large airlines
According to Scope’s calculations, Lufthansa Group (rated BBB-/Positive at Scope) has
taken the biggest extra slice of the market, growing its share by 1.6pp to an estimated
12.3% in 2018 against 2016 (142m passengers in 2018), taking it ahead of Ryanair’s
12% share, International Consolidated Airlines Group’s 9.8%, Air France-KLM with 8.8%
and easyJet with 7.7%.
While the European airline sector remains fragmented – other airlines retain 49.4% of the
market – the larger carriers have filled the gaps left by the exit of the likes of Monarch,
Primera, Small Planet, Azur, Cobalt, VLM, PrivatAir among others in the past two years.
The near-collapse and rescue of budget airline Germania illustrates how smaller carriers
remain under pressure this year (see also Scope’s 2019 outlook on European airlines:
Flight paths diverge as smaller carriers face credit squeeze, Nov 2018).
Figure 2: Market share gains of major European carriers
2016 Lufthansa 2018E
Lufthansa
Group Group
10.7% 12.3%
Ryanair
11.4% Ryanair
12.0%
Others
Others 49.4%
IAG
51.9%
9.8% IAG
9.8%
AF-KLM
9.1% AF-KLM
easyjet easyjet 8.8%
7.2% 7.7%
Source: companies, ACI Europe, Scope
Despite the fragmented nature, as measured by overall market share, some airlines still
benefit from favourable market structures. IATA reported in June 2018 that the number of
routes served by two and more airlines has increased to 30% between 2010 and 2017,
up 5 percentage points since 2010. At the first sight, this would point to increasing
competition but at the same time it confirms that 70% of all routes and connections are
still monopolistic/duopolistic with the resulting benefits for those carriers that serve these
connections.
Some medium-sized airlines have also succumbed to market pressures, again to the
benefit of larger airlines. Lufthansa Group and easyjet picked up the assets of insolvent
Air Berlin (2016 market share of 2.8%). IAG has already acquired landing slots from
Britain’s Flybe, the regional carrier which is up for sale. It remains to be seen whether
Flybe will eventually be sold to the newly formed consortium of Virgin Atlantic, Stobart
Group and Cyrus Capital under the name Connect Airways. The future of Slovenia’s
Adria Airways remains in the hands of the Civil Aviation Agency. And the fate of Alitalia,
Italy’s bankrupt flag carrier, might soon be decided too as the airline looks for a suitor. On
numerous occasions, Lufthansa has communicated not to be interested in Alitalia if the
Italian carrier was to become a (partly) government-owned entity. The most recent of the
many rumours that were spread over the past two year around the fate of Alitalia is an
alleged interest of Delta Airlines Alitalia’s long-haul business.
2/4
 European airlines
Europe’s top five airlines carried more than half of Europe’s passengers in
2018

Some player can afford it to play
the game tougher than others
Scope believes that the shake-out will continue as long as interest rates remain cheap
and the larger – more creditworthy – airlines can benefit from their better cost profiles and
the financial strength to fund the buyout of bankrupt entities. Small airlines cannot pass
on increased costs – from rising jet-fuel prices, US dollar appreciation, higher wages
costs, airport charges and passenger reimbursements – as easily as the large carriers.

Dominating airlines may not fully
pass on increased cost base
What becomes an existential question for some smaller airlines may only be a temporary
sacrifice of profitability for the larger operators such as Ryanair, Wizzair, easyjet or
Lufthansa which can easily afford to give up some percentage points in profitability by not
raising air fares for customers, thereby securing a competitive edge. Ryanair, for
example, has reported a reduction in its EBITDAR margin to a still healthy 36% -
excluding the negative effect from Laudamotion – in the first half of its business year
2018/19 against 41% in the period a year earlier, at an unchanged passenger load factor
and even reduced average air fares. This one reason why we believe the gap in the
creditworthiness of larger airline operators and smaller carriers is set to widen further.

22 January 2019 3/4

 European airlines
Europe’s top five airlines carried more than half of Europe’s passengers in
2018

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Director: Torsten Hinrichs.

22 January 2019 4/4