There have been predictions of widespread airline consolidation since
the onset of the Covid-19 pandemic, but don't expect 2021 to be the
year that happens.
As a best-case scenario, airlines this year are
facing a low-demand first half followed by a potentially swift recovery
at least of leisure travel in the second half, dependent on an
effective vaccine rollout. Airlines' recovery of their corporate
business is likely to face a longer timeline.
"We have little hope for a
rebound in corporate travel in 2021 but could see international markets
begin opening in late 2021 as testing protocols [and] vaccines are
adopted," Cowen and Co. analyst Helane Becker wrote in a recent research
note. Business travel air volumes will likely will remain down at least 85
per cent at least throughout the summer, she said, using 2019 volumes as a
comparison.
As such, speculation is already rising about major
industry consolidation, as airlines will have limited revenues to pay
off costs and increasing debts. Reuters global deals editor Lauren Silva
Laughlin in recently predicted that the US Big Four (American Airlines, Delta Air Lines, Southwest Airlines and United Airlines) would
become the Big Three, with American – facing a debt six times as
high as its projected 2022 earnings – a likely candidate for
consolidation.
Globally, there have already been some major
consolidation moves, most notably Korean Air's announcement in November
that it had reached a deal to acquire and consolidate with rival Asiana
Airlines, and the International Air Transport Association said more
consolidation is likely, at least for airlines within the same country.
News reports have indicated that the Japanese government, as it prepares
financial support for its largest airlines, Japan Airlines and All
Nippon Airways, could push for a merger there as well.
Consolidation
will not be a fast-moving process, however. Palatable deals can be more
difficult to reach when both parties are in their worst possible
financial positions, particularly when the recovery timeline remains
unclear. The increased stake that some governments have taken in airlines as a
result of stimulus packages make deals murkier.
There's also the
regulatory aspect. In the United States, for example, President Joe
Biden has not yet said a lot specific to the airline industry, though
the Democratic administrations have typically been a bit more wary of
competition implications of mergers than their Republican counterparts.
They will be more amenable if they can make the case that a merger is an
existential necessity, as Korean and Asiana are doing, but even so, it
will not be a quick process.
As such, expect to see more
cooperation to emerge this year – in the vein of American's new
partnerships with Alaska Airlines and JetBlue last year – but larger
merger activity probably remains a bit further down the road, depending
on how the recovery pans out for airlines.
Over the course of the
next several years, however, it's become clear there will be fewer
players left in the game, one way or another.
"Covid-19 is not
going to go away in 2021," CAPA founder and chairman emeritus Peter
Harbison said at a CAPA Live summit late last year. "It's not going to
be solved quickly by a vaccine. Many airlines themselves have shrunk
already and will stay smaller. There will be ongoing financial losses.
Airline consolidation is inevitable, including airline departures and
restructuring."
This article was first published at businesstravelnews.com, BTN Europe's North American media companion.