European airlines, look away now: Ryanair's chief executive Michael O'Leary expects that most will disappear over the next half-decade.
Briefing media in London on 31 August, O'Leary predicted that, within such a timeframe, the sector would follow the US example and consolidate around "four of five-ish big European airlines, all of whom will have grown to 150 million to 200 million passengers a year".
He adds: "If you look at the US market you see the emergence of four big carriers – they dominate the industry. You are already seeing the same trend here in Europe."
While he foresees that Ryanair will develop to this size "organically", O'Leary expects the likes of IAG, Air France-KLM and Lufthansa to "grow by merger and acquisition over that period of time".
O'Leary questions whether EasyJet can remain independent, floating the prospect that the UK airline could be "merged with someone – possibly an Air France, or an IAG here in Gatwick, or Air France in Paris".
He argues that EasyJet will "struggle to compete with us on price" and suggests that it could adopt a fortress strategy of developing "a big impregnable position" at hubs such as Paris and London Gatwick.
Ryanair will not be able to "move in on them", he says, but he also casts doubt on his rival's growth prospects, saying that EasyJet will only remain profitable "by being big at those airports".
O'Leary is likewise skeptical regarding EasyJet's chances of retaining both its UK and European operations within one business post-Brexit. Problems with that could prompt a merger into a larger carrier group, he believes.
"I think there is a reasonable 50/50 chance they [EasyJet] will merge with either IAG or Air France in the next four to five years," he concludes.
A similar fate could await budget rival Wizz, by O'Leary's reckoning. "Wizz I think are too small: Wizz are a niche player in eastern Europe, and as we are moving into eastern Europe I think Wizz just get pushed out."
He adds: "Again, I think Wizz will probably finish up being acquired by someone like Lufthansa, which would give Lufthansa greater spread across central and eastern Europe, to kind of marry out what they have presently in Germany, Austria, Switzerland, Belgium – it's the Greater Prussian unification all over again."
More immediately, he expects that Air Berlin, which filed for insolvency earlier this month, will be absorbed by Lufthansa to create a "German monster" via what he terms a "stitch-up".
He expects that, while competition regulators will step in to examine the deal and demand remedies, the merger of the two airlines will still ultimately happen.
Brexit could have one more potential impact on the consolidation process, O'Leary proposes. If the EU insists on designating the UK as a third-party entity following its exit from the bloc, IAG could be broken up as the group's structure would be incompatible with ownership and control rules.
In such a scenario, other European players could swoop in to pick up the pieces.
"Air France would quite like to buy Iberia," he suggests. "Now, if they can force BA [owner IAG] to sell Iberia in a post-Brexit [scenario], then they could buy Iberia on the cheap."
Source: Cirium Dashboard
