Consolidating airline industry dating a vampire 101

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Facing insolvency after key investor Etihad threw in the towel after years of trying to keep them flying despite losses, both airlines may now be snapped up whole or carved up by rivals interested in getting a hold of their planes and airport landing slots. "The sector will continue to consolidate because the business models are in the process of changing," said Stephane Albernhe, managing partner at Archery Consulting."It is an underlying trend in Europe and the United States, where four 'consolidators' are in the lead: American, Delta, United, and low-cost Southwest." For Europe, consultant Jerome Bouchard at Oliver Wyman believes that eventually "there will be an oligopoly centred around Lufthansa, IAG and Air France-KLM".New shake-up in the European airline industry The squabble over the assets, routs and valuable airport slots of bankrupt Alitalia and insolvent Air Berlin heralds a new shake-up in the European airline industry, news agency AFP reports.And if other airlines can’t cut costs, they may end up the same way, industry analysts warn.

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With profit margins already tight, airlines are going to have to attack their high fixed costs on planes, fuel and labour.

“Alitalia will very likely join, either in whole or in part, Air France-KLM, Lufthansa, IAG, or even easy Jet or Ryanair.” With profit margins already tight and yields declining, airlines will have to cut their high fixed costs on planes, fuel and labour.

Wages are a major drag for older carriers; pilots’ salaries at Air France are 20-25% higher than those at easy Jet, insiders say.

Alitalia and Air Berlin had both been operating at losses for years.

Low-cost airlines had eaten away at Alitalia's market share in particular, with Ireland's Ryanair having eclipsed it as the largest operator in Italy.

Also alliances may get tighter, with Air France-KLM, for example, recently allowing Sky Team partners Delta and China Eastern to take stakes in its equity capital.

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