Industry consolidation and future airline network structures in Europe

Abstract

A__hs!ra_ _ctIn the current downaa'n in demand for air travel, major airlines are revising and rationalising 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. The failure of airlines such as Sabena and Swlssair has also enforced restructuring at some of Europe's busier airports. This paper analyses the developments which have been taking place and attempts to itentify the implications for airline network _s and the function of different hub airports.Airlines have rationalised their networks by withdrawing services that feed the hubs of rival alliances. New ;links have however _ created hthatare made feasible by the alliance support. The range of services available to passengers in long-haul markets to/from Europe is evaluated before and after recent industry reorganisation.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 kmattached' 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 poss_le 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.

Dynamics in the European Air Transport Network, 2003–9: An Explanatory Framework Drawing on Stochastic Actor-Based Modeling

“…In addition, the slightly positive betweenness effect means that airports in Europe tend to 'stand' between two indirectly connected airports, corresponding to the development of 'hubs' in the 'hub-and-spoke' network configuration by full-service carriers in Europe, even though this effect is offset when controlling for the impact of growing LCC bases. The positive transitive triplets effect representing network closure and cohesiveness and the positive betweenness effect representing the opposite network concentration and sparseness provide explicit evidence that a multi-layered network in which hub-and-spoke network structure and point-to-point network structure are melted together (Dennis, 2005;Goedeking, 2010), suggesting that the trade-off game between these two types of network structures seems to continue in the future.…”

Air transport liberalisation and airport dependency: developing a composite index

“…Their initial reaction was to strengthen their presence and that of their alliance partners at the hub airports. This meant that the latter were highly dependent upon a single operator or alliance group for most of their traffic (Dennis, 2005); nonetheless, for a number of airlines (such as SAS, Lufthansa, Air France/KLM and IAG: British Airways/Iberia) there is now a growing trend to use multiple hub airports (Bush and Starkie, 2014). Operating at multiple hub airports provides network carriers with the option to switch parts of their business between the different hubs.…”

Mapping expert perspectives of the aviation sector

“…Mayor and Tol (2009), Oum et al (2006) Button (2009) and Dennis (2005) ); tradable permits for carbon (e.g. Anger (2010)); and issues specific to individual stakeholders such as determining the 'optimal structure' of an airline (e.g.…”

“…Thus, while global warming/climate change (Gössling et al 2007;Bows et al, 2005;Sgourdis et al 2010;Miyoshi and Mason, 2009) and institutional issues relating to competition, liberalisation, and consolidation (e.g. Mayor and Tol, 2009;Oum et al, 2006;Dennis, 2005) are clearly important to the interviewees, both have been studied extensively and dominate the aviation literature. By contrast, previous work reporting on the influence on the demographics, social norms and capacity seems less developed, though apparently of equal interest to the experts interviewed.…”