Why Are Airlines Consolidating, and What Does It Mean for the Industry?

It’s a subject that has been on the minds of aviation professionals for a while now, and which has received renewed attention and generated headlines more recently. No, I’m not referring to Elon Musk’s proposed takeover of Ryanair (and Michael O’Leary’s response) – I’m talking about consolidation, or the process by which carriers merge with, invest in, or purchase other airlines. But what is it that has driven this phenomenon over the past few years, and what bearing does it have on the wider industry?

First, it’s worth recapping some of the major developments we’ve seen recently. The new year was barely ten days old before news broke of Allegiant’s acquisition of Sun Country Airlines in a deal worth around $1.5 billion. Before Christmas, meanwhile, Mexican low-cost carriers Volaris and Viva confirmed that they were near a merger agreement. The two carriers fly similar routes and use Airbus planes, and their deal would bring their combined market share to over two thirds of the domestic market – something that competitor Aeromexico is likely to oppose.

Staying with North America, perhaps the most notable aviation merger to take place in recent years has been that of Alaska and Hawaiian Airlines in late 2023, with the latter’s operations rerouted to Alaskan’s Seattle headquarters. Elsewhere there have been several well-publicised, ultimately unsuccessful attempts to take over Spirit Airlines, with first Frontier, then JetBlue falling foul of US antitrust law. Spirit subsequently filed for Chapter 11 bankruptcy twice, and the airline continues to face an uncertain outlook. Before Christmas, there was speculation about Frontier resurrecting their interest in Spirit, amid recent reports of Castlelake’s interest in acquiring the airline; this is definitely an area to watch.

In Europe, consolidation has meant largely meant investment rather than mergers. This has included the majority stake Air France-KLM – the group, of course, born of these airlines merging in 2004 – acquired last year in SAS, another carrier that secured strategic investment from Castlelake amid a Chapter 11 process. We’ve also seen the Lufthansa Group’s 41% stake in ITA and minority share in airBaltic, both of which were announced last January. The Turkish carrier Pegasus Airlines, meanwhile, made a splash late last year by buying Czech Airlines and its subsidiary, Smartwings, while the flagship Turkish Airlines bought a minority stake in Air Europa last summer. Meanwhile, the question on the lips of many European aviation professionals concerns the fate of TAP Air Portugal. Of course, the process is somewhat different for a nationalised airline; Portuguese Minister for Infrastructure and Housing Miguel Pinto Luz recently announced that TAP’s buyer would be selected by this summer. Everyone in the industry will be watching this one closely.

What does the flurry of activity in Europe suggest within the wider global context? While various investments might give the appearance of significant consolidation in Europe, it is worth noting that most of these deals involve smaller market shares and do not constitute outright takeovers. European carriers may have a strong track record with consolidation, though there has still been significantly less activity there than in North America. As CAPA reports, ‘it takes Europe’s top 21 airline groups to match the 86% seat share of the top seven in North America’ – such a division would be unlikely to get past European regulators.

CAPA’s comment about consolidation does confirm a major motivator behind airline consolidation: allowing for exceptions and teething issues, it’s profitable. Since the beginning of the dominance of the ‘big four’ US airlines, not least in response to the financial crash, it makes sense that we have seen more consolidation in recent years amid a turbulent global backdrop.

Aviation is particularly exposed to geopolitical currents, and it’s worth remembering how tough the outlook for the airline industry was five years ago at the height of COVID-era restrictions. Consolidation, perhaps especially in Europe, has certainly been informed by the fallout of the pandemic. This sector is sensitive to macroeconomic trends, weather events, and conflict – all of which, sadly, we have seen too much of in recent years – and carving out a strategic advantage by buying up competitors makes sense for the carriers that can afford to do so. Even in Europe, investments rather than outright acquisitions still make sense from the points of view of influence and reach; in a competitive and tightly regulated market, such cash injections represent a relatively secure investment for major airline groups amid uncertain global trends.

What does airline consolidation mean for industry talent? Where jobs and/or hubs move, workers may not want to relocate (if said positions have not already been made redundant). Frequently, this provides talent with a golden opportunity to try a new industry or role somewhere else. In aviation, commercial functions are arguably at the greatest risk in such instances; airlines typically want to keep as many engineers and operations staff on board as possible during periods of consolidation, whereas other teams are more likely to be seen as expendable, even if on a temporary basis.

M&As, investment, and takeovers typically act as catalysts for change within a business. They can usher in new skills and capabilities that are harder to build organically, and force leaders to consider whether the right people are in the right roles. At the same time, periods of transition tend to reveal who the true value drivers are; retaining key individuals, clarifying direction, and resetting expectations quickly become as important as the deal itself. When executed well, such transitional periods create opportunities to reshape the organisation. Teams can be streamlined, capability gaps addressed, and talent aligned to future strategy rather than to existing structures.

For employees, the idea of restructuring or merging can be daunting and represent uncertainty – but you don’t have to see it this way. Remember, M&As may bring new opportunities you’re not aware of yet; consolidation can be a great chance to position yourself as an asset to the business and showcase a wider skillset.

Amid reports of boosts in profits this year, remains to be seen whether we will have more consolidation in aviation this year, what the impact of further M&As will be on passenger numbers, or if activity will slow down. As with anything in this industry, however, things can and do change quickly. We can’t be certain about what might emerge over the next few months, but for me the main question mark remains around TAP’s buyer. I know who my money’s on – who do you reckon will end up taking over the Portuguese airline?