Airlines put emphasis on profits over market share

According to a new report from US market research and analysis firm Frost & Sullivan global airlines are shifting their focus from increasing market share to increasing profitability.

Historically, industry participants in the global airline industry have expanded capacities and networks and have also engaged in price wars in an effort to gain market share, the firm said. Currently, however, the industry is characterized by slackening passenger demand and soaring fuel prices.

The industry is cyclical and its performance is closely linked to gross domestic product. Given this scenario, merger and acquisition activity is expected to gain momentum, as industry participants increasingly focus on cost cutting and excess capacity reduction in a bid to improve profitability.

New analysis from Frost & Sullivan finds that over the past five years, close to 446 deals with an approximate value of USD 54.19bn have been struck across the four major sub-sectors of the global aviation industry, including commercial airlines, private or business aircraft services, helicopter transportation services, and rescue and safety aircraft services.

The commercial airlines sector has been the most active sector by both deal volume (at 48.4%) and total deal value (at 87.3%).

While overall M&A activity was suppressed in 2011 and 2012, the recovery of global markets is expected to renew M&A activity, led by cash-rich companies, especially in the European region. In recent times, while Europe has been the most active region in terms of deal volume, North America has been the most active region when it comes to deal value.

A high level of M&A activity in Europe is anticipated to continue for the next five years, with the key driving factor being the need to cut excess capacities and increase load factors. Cross-border deals are expected to gain dominance as reflected by one such deal between Etihad and AirBerlin.

Frost & Sullivan forecasts carriers in Asia-Pacific, the Middle East, Latin America, and Africa to increasingly enter into alliances and code-sharing networks with European and North American carriers.

Find out more at www.frost.com.