ABTN editor Stanley Slaughter takes a closer look at airline consolidation
After a quiet spell following some frenzied activity, the move towards consolidation in the aviation industry sparked into life again last week.
No fewer than three possible mergers leapt into the news: Ryanair's renewed bid for Aer Lingus, BA's exploratory talks with Qantas and the continued and persistent rumours of a tie up between Emirates Airlines and Etihad Airways.
Although any deal between BA and Qantas is likely to be the most far reaching, it is the possible link between the two Middle East carriers that is the most intriguing.
If a merger or joint venture is sealed, a giant airline will be set up in the Middle East, ready to challenge the great carriers of Europe and the US. It is a thought which can hardly bring comfort to the board rooms of airlines in the West, especially those now suffering under the downturn.
With demand, revenue and profits falling, the last thing BA, Air France KLM or Lufthansa need is a fresh young challenger with access to the seemingly bottomless coffers of the oil rich Gulf States.
But just how likely is this?
Both airlines have much in common. They are owned by their respective countries, Emirates by Dubai, Etihad by Abu Dhabi. Both are also growing at an incredible rate. If Emirates, which carried 21m passengers last year, continues its current rate of expansion, it will be the biggest airline in the world in the next decade.
Etihad, which was launched only five years ago, has in that short space of time built up a network of 50 destinations and now carries six million passengers a year. Its business class out of Heathrow is regularly 80% full.
To cater for this expansion, both have placed multi-billion dollar orders for new aircraft.
Emirates has ordered a phenomenal $60bn worth of aircraft, including 58 Airbuses 380s while Etihad has orders worth $43bn.
But according to aviation analyst Andrew Solum, a director of Travel Industry Associates, things are not going so well for Emirates.
Mr Solum said that the Dubai government approached its Abu Dhabi counterparts with a request to borrow money and were told they would want some things in return and one of those things was Emirates.
Two of the reasons for the need for cash are that Emirates has to pay $418m a month for the next four years for the aircraft it has ordered and that efforts to raise money on the financial markets have proved rather expensive.
The airline is also not so highly regarded as it was a few years back. Revenues are down, crew numbers are down and there have been rumblings of discontent from passengers. Mr Solum described the airline's service level as "poor."
"They are having a really hard time and there is competition out there now against them.
"The Emirs of Abu Dhabi have the oil money and they have not so far flexed their financial muscles.
"It would make sense to have a joint venture but it would not mean that the Emirates name will disappear," he said.
These two are not vast airlines on a global scale. For example while Emirates has 144 aircraft, BA has 257.
A joint venture would not create a world size airline. But it would create the biggest carrier in the Middle East with a central geographical location, sat neatly between Europe and the States to the west and Asia, including India and China, and Australasia to the East. If the balance of economic power is shifting towards the east, the Middle East is handily placed to benefit.
Also neither has joined any of the alliances which has given them the added freedom of being able to make a wide variety of deals with other carriers.
"This is very interesting," said Mr Solum. "And I can see it happening."
Meanwhile BA's plans to create a global airline have run up against Spanish pride. It seems, incredibly enough, that BA while in intense talks with Iberia over an all-share merger, did not mention that it was also in talks with Qantas.
Fernando Conte, Iberia's ceo, was obviously more than a little peeved as he admitted he knew nothing of these talks until Willie Walsh, BA's ceo, told him an hour before the public announcement.
So while BA was proposing marriage to Iberia, it was also, it seems, playing footsie under the table with Qantas.
The last time BA tried to take over Iberia, the deal fell through because powerful shareholders wanted the airline to remain in Spanish hands. This should have been warning enough to play things straight.
It is likely that the BA-Iberia merger will go through next year because it is in the interest of both carriers. But BA has not made things easy.