Merge or Perish: Irish Aviation in a Rapidly Changing ... or Perish-Irish... · UCD School of Economics UL Kemmy Business School . Presentation Overview •Global trends in air transport

Merge or Perish: Irish Aviation in a Rapidly Changing Global

Market

Third Annual Tourism Policy Workshop, November 2-4, 2012

Professor Aisling Reynolds-Feighan UCD School of Economics

UL Kemmy Business School

Presentation Overview

• Global trends in air transport

• Airline networks

• Competition

• Industry Consolidation & Spatial Concentration

• European mergers

• Aer Lingus & Ryanair

• Prospects for the Irish Market

Funding provided by UCD Centre for Regulation & Governance & UCD School of Economics

Global trends in air transport

• Air Traffic Growth – key drivers – Economic Growth

• Rapid urbanisation of global population (67% by 2050)

• Concentration of population and of economic activities in space has driven economic growth and development

• Acted as the focal points for the developing global air transport network

• Industry forecasts – average case: long run growth rate of 4-5% to 2030

Air Traffic Growth in 2000s

• Rapid Growth in European and Asian Markets

• Focused on intra-continental traffic

• Still relatively small inter-continental traffic

2010 - AF

2010 - AS

2010 - EU

2010 - LA

2010 - ME

2010 - NA

2010 - SW

0

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3

4

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6

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9

AFAS

EULA

MENA

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ival

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Mill

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Departure Region

Global Distribution of Departure Passenger Air Traffic Movements, 2010

2010 - AF 2010 - AS 2010 - EU 2010 - LA 2010 - ME 2010 - NA 2010 - SW

2010 - AF

2010 - AS

2010 - EU

2010 - LA

2010 - ME

2010 - NA

2010 - SW

0

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AFAS

EULA

MENA

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Departure Region

Global Distribution of Departure Passenger Air Traffic Movements, 2010

2010 - AF 2010 - AS 2010 - EU 2010 - LA 2010 - ME 2010 - NA 2010 - SW

• How important is air transport to Ireland?

0

200000

400000

600000

800000

1000000

1200000

1400000

PASSENGER-KILOMETRES PERFORMED (millions), 2011

Passenger-kilometres performed (millions) Total Operations (Dom & Int'l) Rank

ICAO Annual Report of the Council, 2011

Very Important!

0

200000

400000

600000

800000

1000000

1200000

1400000

PASSENGER-KILOMETRES PERFORMED (millions), 2011

Passenger-kilometres performed (millions) Total Operations (Dom & Int'l) Rank


Very Important!

Ranking based on traffic from carrier’s country of registration

PASSENGER-KILOMETRES PERFORMED (millions)

Total Operations (international and domestic)

International Operations Only

Pop Rank

Country or group Rank 2011 2010 % Change 2010-2011

Rank 2011 2010 % Change 2010-2011

United States 1 1310556 1284300 2 1 403468 394593 2 3

China 2 451162 400609 13 9 85758 73488 17 1

United Kingdom 3 243003 226419 7 2 234840 218714 7 22

Germany 4 222977 201567 11 3 212813 191435 11 16

United Arab Emirates 5 206384 190156 9 4 206384 190156 9 94

France 6 145340 137283 6 5 134280 126786 6 21

Russian Federation 7 126837 109435 16 14 63452 52616 21 9

Canada 8 123664 115793 7 11 75110 68 10 35

Japan 9 121754 137927 -12 13 64369 72060 -11 10

Ireland 10 109824 97834 12 6 109789 97779 12 119

India 11 108922 99269 10 20 50472 49885 1 2

Singapore 12 108048 98966 9 7 108048 98966 9 116

Brazil 13 105641 90474 17 24 25728 22763 13 5





Pop Rank Country or group Rank 2011 2010 % Change

2010-2011 Rank 2011 2010 % Change

2010-2011

United States 1 1310556 1284300 2 1 403468 394593 2 3

China 2 451162 400609 13 9 85758 73488 17 1

United Kingdom 3 243003 226419 7 2 234840 218714 7 22

Germany 4 222977 201567 11 3 212813 191435 11 16


France 6 145340 137283 6 5 134280 126786 6 21 Russian Federation 7 126837 109435 16 14 63452 52616 21 9

Canada 8 123664 115793 7 11 75110 68 10 35

Japan 9 121754 137927 -12 13 64369 72060 -11 10

Ireland 10 109824 97834 12 6 109789 97779 12 119 India 11 108922 99269 10 20 50472 49885 1 2

Singapore 12 108048 98966 9 7 108048 98966 9 116

Brazil 13 105641 90474 17 24 25728 22763 13 5

Australia 14 103345 99859 3 17 58918 56264 5 52

Republic of Korea 15 93858 87457 7 8 89089 82651 8 25

Spain 16 90435 86931 4 12 71512 66710 7 28

Netherlands 17 82047 76066 8 10 82047 76066 8 61

Turkey 18 78939 65202 21 16 61076 50043 22 18

Indonesia 19 77224 64781 19 29 20485 16117 27 4

Thailand 21 65783 64556 2 18 57950 57743 0 20

Qatar 22 61600 52733 17 15 61600 52733 17 149


• BRICs: Rapidly growing air transport markets – domestic & intra-regional focus




Pop Rank Country or group Rank 2011 2010 % Change

2010-2011 Rank 2011 2010 % Change

2010-2011

United States 1 1310556 1284300 2 1 403468 394593 2 3

China 2 451162 400609 13 9 85758 73488 17 1

United Kingdom 3 243003 226419 7 2 234840 218714 7 22

Germany 4 222977 201567 11 3 212813 191435 11 16


France 6 145340 137283 6 5 134280 126786 6 21 Russian Federation 7 126837 109435 16 14 63452 52616 21 9

Canada 8 123664 115793 7 11 75110 68 10 35

Japan 9 121754 137927 -12 13 64369 72060 -11 10

Ireland 10 109824 97834 12 6 109789 97779 12 119 India 11 108922 99269 10 20 50472 49885 1 2

Singapore 12 108048 98966 9 7 108048 98966 9 116

Brazil 13 105641 90474 17 24 25728 22763 13 5

Australia 14 103345 99859 3 17 58918 56264 5 52

Republic of Korea 15 93858 87457 7 8 89089 82651 8 25

Spain 16 90435 86931 4 12 71512 66710 7 28

Netherlands 17 82047 76066 8 10 82047 76066 8 61

Turkey 18 78939 65202 21 16 61076 50043 22 18

Indonesia 19 77224 64781 19 29 20485 16117 27 4

Thailand 21 65783 64556 2 18 57950 57743 0 20

Qatar 22 61600 52733 17 15 61600 52733 17 149


0

500

1000

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2500

3000

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Ryanair Lufthansa Air France Easyjet BritishAirways

TurkishAirlines

Air Berlin Iberia SASAirlines

KLM

Nu

mb

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of

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Seat

s A

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ble

Mill

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s Top 10 European Carriers, 2010

Total Seats Available Number of Routes

Low Cost Carriers

0

5000

10000

15000

20000

25000

30000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of Non-Stop Routes by Major Region, 1999-2010

AF AS EU LA ME NA SW

Growth in European Routes Driven by LCCs

0

100

200

300

400

500

600

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Number of Airports with Jet Services by Major Global Regions, 1996-2010

AF AS EU LA ME NA SW

Large number of routes from European airports

• Dominance of Many of Largest Airports by Single Carrier

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Tho

usa

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Airline Code

Departure Movements for Top 10 Carriers in Each Major Region, 2010

AF AS EU LA ME NA SWCarrier Region:

Ryanair

Huge scale of US Carriers

23

0

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40

60

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100

120

140

160

0

200

400

600

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1000

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1400

1600

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nu

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Total Available EU27 Seats Total Available US Seats Number of EU Carriers Number of US Carriers

US & EU27 Number of Carriers and Seating Capacity 1996 - 2010

45

36

US Market: Rationalisation of capacity

Merger activity

24

0

20

40

60

80

100

120

140

160

0

200

400

600

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1000

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1600

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Nu

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Tota

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Total Available EU27 Seats Total Available US Seats Number of EU Carriers Number of US Carriers

US & EU27 Number of Carriers and Seating Capacity 1996 - 2010

137

113

45

36

European Market consolidating

Airline networks

• Academic literature dominated by US view: Hub-and-Spoke networks with transferring passengers

• Airline networks: production plan and products

• Easily change networks by adding or cutting links and nodes

• Airport fortunes dependent on decisions of carriers – investments riskier in liberalised market environments

• Dramatic increases or decreases in air traffic because of carrier decisions

26

Year AF AS EU LA ME NA SW

1999 1.50 1.34 1.25 1.84 1.47 3.26 1.67

2000 1.47 1.32 1.25 1.86 1.44 3.13 1.64

2001 1.45 1.32 1.25 1.92 1.43 3.02 1.54

2002 1.42 1.31 1.25 1.92 1.43 2.96 1.42

2003 1.42 1.32 1.24 1.85 1.43 2.87 1.35

2004 1.42 1.28 1.20 1.83 1.38 2.98 1.31

2005 1.42 1.28 1.16 1.83 1.36 2.89 1.28

2006 1.41 1.26 1.14 1.76 1.33 2.89 1.29

2007 1.36 1.25 1.11 1.74 1.29 3.16 1.27

2008 1.40 1.23 1.11 1.61 1.25 3.03 1.23

2009 1.34 1.24 1.11 1.56 1.23 3.28 1.20

2010 1.35 1.25 1.11 1.48 1.21 3.62 1.19

Ratio of All Route Offerings to Non-Stop Segments Operated

27

Year AF AS EU LA ME NA SW

1999 1.50 1.34 1.25 1.84 1.47 3.26 1.67

2000 1.47 1.32 1.25 1.86 1.44 3.13 1.64

2001 1.45 1.32 1.25 1.92 1.43 3.02 1.54

2002 1.42 1.31 1.25 1.92 1.43 2.96 1.42

2003 1.42 1.32 1.24 1.85 1.43 2.87 1.35

2004 1.42 1.28 1.20 1.83 1.38 2.98 1.31

2005 1.42 1.28 1.16 1.83 1.36 2.89 1.28

2006 1.41 1.26 1.14 1.76 1.33 2.89 1.29

2007 1.36 1.25 1.11 1.74 1.29 3.16 1.27

2008 1.40 1.23 1.11 1.61 1.25 3.03 1.23

2009 1.34 1.24 1.11 1.56 1.23 3.28 1.20

2010 1.35 1.25 1.11 1.48 1.21 3.62 1.19

Ratio of All Route Offerings to Non-Stop Segments Operated

European carriers offering largely direct routings

Qatar

Ethihad Emirates

Middle Eastern Carrier Networks

Saudi Arabian

Doha

Abu Dhabi Dubai

Asian Carrier Networks

Air China China Southern

China Eastern Japan Airlines

North American Carriers

Southwest

Delta Air Lines

JetBlue American Airlines

Ryanair

European Carrier Networks

Lufthansa

Air France

BA

Turkish Airlines

European carriers

nationally focused: small

distance between top

airports

North American Regional Science Association Meetings, San Francisco, Nov

18-21, 2009 33

Top 5 airports served by selected European Carriers

North American Regional Science Association Meetings, San Francisco, Nov

18-21, 2009 34

Top 5 airports served by selected European Carriers

Competition

• Liberalisation – rapid expansion of services;

• Rationalisation and merger activity: reducing capacity and number of carriers in markets

• Europe: further consolidation expected; ownership issues & external traffic rights prevented consolidation in 1990s

• Reality is that most airline routes have one carrier

36

Number of Carriers* Operating on Routes

Region 1 2 3 4 5 6 7 8

EU27 70.9 17.0 7.6 2.8 1.2 0.4 0.0 0.0

EU15 69.0 17.2 8.6 3.1 1.4 0.5 0.0 0.0

NA 60.3 22.6 9.1 4.6 1.9 1.0 0.3 0.2

USA 60.1 22.2 9.5 4.7 2.0 1.0 0.3 0.2

* Includes all international carriers

Competition on European & North American Air Routes, 2010

Mergers: the big trend

38

Merger Candidates Merger Completed

Resulting Entity

Southwest Airlines / AirTran Airways 2/5/2011 Southwest Airlines

SkyWest / Atlantic Southeast Airlines /

ExpressJet Airlines

11/15/2010 SkyWest / ASA

United Airlines / Continental Airlines 1/10/2010 United Airlines

Pinnacle Airlines / Mesaba Airlines 1/7/2010 Pinnacle Airlines / Mesaba Airlines

Delta Air Lines / Northwest Airlines 12/31/2009 Delta Air Lines

Republic Airways / Frontier Airlines 1/10/2009 Republic Airways

Republic Airways / Midwest Airlines 7/31/2009 Republic Airways

Pinnacle Airlines / Colgan Air 1/18/2007 Pinnacle Airlines / Colgan Air

US Airways / America West Airlines 9/27/2005 US Airways

SkyWest / Atlantic Southeast Airlines 8/9/2005 SkyWest / ASA

Republic Airways / Shuttle America 9/5/2005 Republic Airways

American Airlines / TWA 9/4/2001 American Airlines

Delta Air Lines / Comair 10/22/1999 Delta Air Lines

Delta Air Lines / Atlantic Southeast Airlines 3/22/1999 Delta Air Lines

American Airlines / Reno Air 1/2/1999 American Airlines

AirTran Airways / Valujet 11/17/1997 AirTran Airways

European Mergers

• Cross-border mergers permitted among the largest carriers

• Only 2 blocked: Irish & Greek carriers: concerns about dominance in the market

40

Date Merger Event 26 January 2011 Commission blocks proposed merger between Aegean Airlines and Olympic

Air 27 July 2010 Commission approves merger between United Air Lines and Continental Airlines

14 July 2010 Commission approves merger between British Airways and Iberia

28 August 2009 Commission clears proposed takeover of Austrian Airlines by Lufthansa, subject to

conditions

22 June 2009 Commission clears proposed takeover of SN Brussels Airlines by Lufthansa, subject to

conditions

14 May 2009 Commission approves acquisition of British Midland by Lufthansa

09 January 2009 Commission clears Iberia's proposed acquisition of Vueling and Clickair, subject to

conditions

17 December 2008 Commission clears proposed take-over of Martinair by KLM

06 August 2008 Commission approves acquisition of Northwest Airlines by Delta Airlines

27 June 2007 Commission prohibits Ryanair’s proposed takeover of Aer Lingus

22 December 2005 Commission clears planned acquisition of control over Eurowings by Lufthansa, subject to

conditions

05 July 2005 Commission clears planned acquisition of Swiss by Lufthansa, subject to conditions

11 February 2004 Commission clears merger between Air France and KLM subject to conditions

Dublin Airport: All European Routes by Number of Competitors

77%

20% 3%

One carrier 2 Carriers 3 Carriers

2008

73%

8%

2%

12% 0% 5%

One carrier 2 Carriers

3 Carriers 4 Carriers

5 Carriers 6 Carriers

2010

30

40

50

60

70

80

90

100

0 50,000 100,000 150,000 200,000

% R

ou

tes

wit

h O

ne

Car

rie

r

2010 European Departure Movements

European Airports DUB ORK SNN

Dublin

Cork

Amsterdam

Paris-Orly

Paris-CDG

Madrid

0

20

40

60

80

100

120

AMS CDG DUB FRA MAD LHR ORK

Nu

mb

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of

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s

One carrier 2 Carriers 3 Carriers 4 Carriers 5 Carriers 6 Carriers

Number of Routes at European Airports by Number of Carriers, 2010

50%

31%

13% 3% 2% 1%

Aer Lingus 2010, European Routes


4 Carriers 5 Carriers 6 Carriers

46%

37%

15% 2%

Aer Lingus 2010 Dublin Routes

One carrier 2 Carriers 3 Carriers 4 Carriers

80% 11%

6% 2% 1%

0%

Ryanair 2010, European Routes


4 Carriers 5 Carriers 6 Carriers 68%

23%

9%

Ryanair 2010 Dublin Routes


54%

26%

12%

6% 1% 1%

Lufthansa


58% 24%

10%

6% 1% 1%

Air France


52%

22%

16%

5% 3% 2%

Iberia


27%

38%

21%

9% 3% 2%

BA


Ryanair-Aer Lingus Merger

Cons

• Merged company dominant carrier at Dublin Airport

• Competition eliminated from 30- 40 routes

Ryanair-Aer Lingus Merger

Pros

• Strong Irish Carrier – Major player in European Market – vital for accessibility

• Access to secondary airports but also capital city primary airports network for long haul route development

• Management , fleet ownership & expertise likely to continue to be based in Ireland

• ME or EU Carrier takeover of Aer Lingus could result in downgrading to feeder services to another European hub -End up with just one Irish carrier anyway, but with reduced access to primary EU airports

Prospects for the Irish Market

• Difficult economic circumstances will affect air traffic prospects

• Completion of the IUM network has changed the geography of Ireland

• Regional airports played an important role in 1990s & 2000s: difficult to survive without subvention – hard to justify now

• Shannon, Cork & Kerry: significantly overlapping hinterland & now closer to Dublin

Conclusion

• Air accessibility is vital for an export-oriented Island economy

• Demonstrated advantages to having a strong European-focused Irish airline

• European consolidation will continue & give rise to further spatial concentration of air traffic

• Ireland must think of long term strategic needs!

Merge or Perish: Irish Aviation in a Rapidly Changing ... or Perish-Irish... · UCD School of Economics UL Kemmy Business School . Presentation Overview •Global trends in air transport

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