Europe's airline industry, which saw its biggest takeover when Air France SA agreed to buy KLM Royal Dutch Airlines NV this year, may be set for more consolidation, said Jan-Ernst de Groot, KLM's general counsel.
"A lot of airlines want to see Air France-KLM as a first mover," said de Groot in an interview from Amsterdam.
British Airways Plc, whose second-quarter profit fell 36 percent as it cut fares to fend off low-fare competitors, has said Spain's Iberia Lineas Aereas de Espana SA is its likely merger partner. Europe's carriers combined will post losses of as much as US$2.4 billion this year, according to estimates by the Brussels-based Association of European Airlines.
"There is a need for airlines to look for alliances and even takeovers," said Gert-Jan Geels, an asset manager at Eureffect BV in Amsterdam who sold his holding in KLM and Air France after the takeover announcement. "I expect in future to see three to four major airlines in Europe which will divide up all the European flights that aren't in the low-cost sector."
British Airways shares have risen 79 percent this year as demand for air travel began to pick up after a slump caused by the Iraq war and the spread of SARS, leading a 52 percent advance in the Bloomberg Europe Airlines Index. British Airways has lost two-thirds of its market value since May 1997.
Europe's full-service airlines are under pressure as budget- conscious passengers switch to no-frills carriers, including EasyJet Plc and Ryanair Holdings Plc. A flight with EasyJet from Amsterdam to London Stansted costs 30.49 euros (US$37.90) compared with KLM's fare of 264.05 euros from Amsterdam to London Heathrow, according to the carriers' Web sites.
A new "open skies" treaty with the US may be a catalyst to reduce Europe's 26 national airlines to three groupings, led by British Airways' Oneworld, Deutsche Lufthansa AG's Star Alliance and Air France's SkyTeam, said Rigas Doganis, an airline industry consultant, in an interview.
Airlines are using partnerships to reduce expenses as they are forced to cut ticket prices. OAO Aeroflot, Russia's largest airline, said on Oct. 31 that it's "inclined" to accept an offer to join SkyTeam. Swiss International Air Lines Ltd, the successor to Swissair, on Sept. 23 chose to join Oneworld.
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