Fasten your seat belts - turbulence ahead.

Alitalia is just one of many smaller national carriers struggling against high fuel prices,

.. fierce competition from low-cost carriers,

.. and European officials increasingly saying NO to state bailouts - as Hungary's Malev found to its cost last year.

Hopes were high that Air-France-KLM - already a shareholder - might step in with some cash for Alitalia.

But they too have problems: restructuring and debt reduction top of the list.

Mid-East carrier Etihad was also seen as a contender.

Failing that, Alitalia might be in for a bumpy landing, says JLS Consulting's John Strickland.

SOUNDBITE (English), John Strickland, airline analyst, JLS Consultancy, saying:

"With no further investment by an airline or indeed other investors, the future would look pretty bleak. The airline's losing a large amount of money. It's becoming more and more marginalised in Europe as a whole, where we see consolidation. In its home market, it's facing an awful lot of pressure from low-cost competition, particularly from Ryanair and Easyjet, so at the very least it would have to shrink its activity considerably."

The industry's bad news has been mounting up.

Willie Walsh, chief of British Airways, predicting "a number" of European airlines would go out of business, and an industry-wide profit warning from the main industry group ....

... just two recent headlines.

But it's also been slow to adapt.

The continent's top five - Air France-KLM, Lufthansa and IAG - made up of BA and Iberia - together with Ryanair and Easyjet, hold just over half of EU flight capacity.

Contrast that with America, where a much bigger wave of consolidation has resulted in the top US five holding over 80 per cent.

Europe's average profit margins are lower too: just 0.3 per cent, against over 3 per cent in the US - 4.6 in Asia.

And those low margins mean that while there's been consolidation among Europe's biggest names, the smaller, state-run airlines look unlikely to attract suitors.

SOUNDBITE (English), John Strickland, airline analyst, JLS Consultancy, saying:

"In the past they might have been expecting to be propped up by their respective governments. But today those governments don't have the financial means to do so. The industry is consolidating into fewer, larger and more efficiently-run units. So those airlines, unless they are absorbed by others, are quite possibly going to fall by the wayside in the coming months and years."

So could the future be low cost?

Perhaps - but even the cheapest are not immune to the challenges ...

... Ryanair's recent profit warning leading to an 11 per cent dip in its share price in just one day.

 

Advertisement