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KPMG: Airlines Consolidation Inevitable. Cooperation Critical to Survival

Christina Broder, Big4.com Staff Reporter
26 December 2010
 
A new KPMG global report finds airlines are increasingly using a variety of innovative mechanisms to cooperate, such as expanded codeshare agreements, increased alliance participation, joint service agreements or strategic procurement partnerships. All this to work around restrictive international route rights rules and foreign ownership restrictions which prevent full mergers – and new ways of cooperating airlines provide the benefits of mergers without actually merging,
 
KPMG’s 2010 Airline Disclosures Handbook highlights the following four ‘future hotbeds’ of consolidation:
 
  1. Expanded codeshare agreements – representing a low risk source of aircraft capacity; expanded use of these can provide quick access to new markets.
 
2. Increased alliance participation – increasing carriers’ networks without the purchase of additional aircraft to realize quick benefits
 
3. Joint services agreements – offers participating airlines significant benefits usually requiring anti-trust immunity, particularly to set schedules and share marketing initiatives on selected flights and routes
 
4. Strategic procurement partnership – to push costs lower and increase returns, or provide cheaper tickets to air travellers or improve profitability.
 
KPMG recommends that the airline industry needs to look at other globally regulated industries such as energy and natural resources to find innovative ways to integrate operations.
 
Dr. Ashley Steel, Global Chair for Transport at KPMG indicates growing consolidation due to pressures on costs and revenues is unstoppable. The severe global weather conditions are an additional burden. And despite regulatory constraints, airlines are now working together to a degree they have never done before, simply because they have to.
 
Dr. Ashley Steel comments: "Interestingly, after 100 years of aviation history the airline industry has only recently begun to take action on consolidation. In this regard it lags behind many sectors. The exciting times are yet to happen with a new frontier yet to be exploited by the industry."
 
 
 
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