Airline Consolidation Reducing Airports’ Negotiating Power: Accepting Low-Cost Airlines and Expanding into Asia will Restore Power Balance Dynamics

Consolidation in the airline industry is reducing their reliance on airports. Airports will have to diversify their operations abroad and welcome low-cost airlines to negate this power imbalance.

In the year 2000 for example, the top four players in the US airline industry had a combined market share of 61%. By 2015 the top four players namely American Airlines, Delta Air Lines, Southwest Airlines and United Continental had a combined share of 84%.

Airports Council International (ACI) Europe head Olivier Jankovec speaking on this issue stated that "Consolidation means less airlines in the market to chase, to serve your airport and open destinations. It also gives airlines more purchasing power, more power to dictate the conditions under which they serve an airport. An airport cannot move, [but] an airline can move to another location”.

The balance of power between airports and airlines has increasingly been tilting towards airlines in recent years, as their consolidated nature has allowed them to dictate terms more so than airports. However airports can negate this tilt by themselves expanding their operations to other parts of the world, thereby reducing their reliance on a select few airlines.

Scope

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Reasons to buy

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Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

Airlines under increasing financial pressure due to competition, regulatory costs and oil price fluctuations 6

Increased competition and rising regulatory costs affecting European and North American airline companies 6

Oil price fluctuations continue to hamper industry 7

Consolidation in the airline industry increasing airport reliance on fewer buyers 9

Strong decline in the number of airlines in Europe and North America 9

Bankruptcies also reducing the number of players 10

Consolidation in the airlines industry is reducing negotiating power of airports 11

Decline in retail revenue also affecting airports negatively 12

Expansion into less mature regions and consolidation between airports required 14

Asia is witnessing an airport boom presenting growth opportunities for European/North American airport groups 14

Major airports will have to continue welcoming low budget airlines 15

Consolidation in the airline industry negatively impacting airports 17

Airports would do well to expand operations to less mature regions and welcome low-cost airlines 17

Appendix 18

Sources 18

Further Reading 19

Ask the analyst 20

About MarketLine 20

Disclaimer 20

List of Tables

List of Tables

Table 1: UK Air Passenger Duty Rates, GBP and $, 2015-2019 7

Table 2: Top five airline”Ÿs share at Hartsfield-Jackson Atlanta International Airport, January 2018 9

Table 3: Percentage change in the revenue of Frankfurt Airport and value of German airline industry, 2013-2017 12

Table 4: Largest airlines in Italy in terms of passengers carried, 2016-2017 13

List of Figures

List of Figures

Figure 1: Average price of crude oil, $ per barrel, and % growth in the global airline industry 2013-2018 7

Figure 2: Monarch Airlines Operating Profit/Loss, $ m, 2012-2016 10

Figure 3: Air Berlin Revenue per Kilometer (RPK), $m, 2012-2016 11

Figure 4: Chinese population in income brackets as % of total population, 2010-2015 14

Figure 5: The under-construction Beijing Daxing Airport 15

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