Industry Consolidation and Future Airline Network Structures in Europe

In the current downturn in demand for air travel, major airlines are revising and rationalizing their networks in an attempt to improve financial performance and strengthen their defences against both new entrants and traditional rivals. Expansion of commercial agreements or alliances with other airlines has become a key reaction to the increasingly competitive marketplace. In the absence, for regulatory reasons, of cross-border mergers these are the principal means by which the industry can consolidate internationally. This paper analyzes the developments which have been taking place and attempts to itentify the implications for airline network structures and the function of different hub airports. The range of services available to passengers in long-haul markets to/from Europe is evaluated before and after recent industry reorganization. Hubs are crucial to interlink the route networks of parmers in an alliance. However, duplication between nearby hub airports that find themselves within the same airline alliance can lead to loss of service at the weaker locations. The extent to which the alliance hubs in Europe duplicate or complement each other in terms of network coverage is assessed and this methodology also enables the optimal partnerships for "unattached" airlines to be identified. The future role of the various European hubs is considered under different scenarios of global alliance development. The paper concludes by considering possible longer-term developments. In an environment where the low-cost carriers will provide a major element of customer choice, it is suggested that the traditional airlines will retrench around their hubs, surrendering many secondary cities to the low-cost sector. Further reduction in the number of alliances could threaten more of the European hubs. For both regulatory and commercial reasons, the end result may be just one airline alliance - so recreating in the deregulated market the historic rule of IATA.