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North Atlantic:
Disruption potential November 2017 Download PDF

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Transatlantic services represent the largest and most mature long haul air transport market in the world. For the ten years up to 2013 growth in capacity terms had been lacklustre, but since then the total number of seats on offer has risen by 20%.

From 2009, the market on the Atlantic has become increasingly consolidated. The anti-trust immunised joint ventures of Air-France-KLM and Delta (erstwhile Alitalia and now Virgin), Lufthansa Group, United and Air Canada, British Airways, Iberia, Finnair and American are all required to operate on a “metal-neutral” basis as a precondition of their immunity against talking about fares and capacity. The US domestic industry has also consolidated with the combinations of Delta/Northwest, United/Continental and American/US Airways.

The three virtual airline combinations control nearly 70% of the capacity on services between North America and Europe/Middle East and Africa (see chart). 

None of the major carriers produce details of profitability by route network region, but the US DoT still requires US carriers to file detailed information. The chart above shows the rolling 12 month operating margins for the three major US carriers on the traditional traffic Form 41  Atlantic and Domestic regions.

There may be many reasons why individual route area results  change from year to year, but it is noticeable that the operating margins on the Atlantic really started to pick up from mid 2012 as the trans Atlantic joint ventures kicked in. Indeed the margin performance preceded that of the development in the domestic market — until the emergence of American from Chapter 11 and its merger with US Airways in 2014.

Meanwhile, the three virtual airlines retain a stranglehold on the hub-to-hub traffic (see table). The Star Alliance JV has a virtual monopoly on its operations between its hubs — highlighting if anything that it is the most dependent on short haul feed at either end of the routes.

Skyteam is not far behind. Since we last did this analysis, Rome has fallen out of the data as a hub (not only did Alitalia resign from the joint venture but it also decided to go bust).

The oneworld JV is the least concentrated. But this is mostly because the BA hub at Heathrow, and American’s at JFK, are the primary gateways on the Atlantic. We have included Dublin as a hub in our analysis on the assumption that IAG’s subsidiary Aer Lingus will eventually join the joint venture.

New entrants

It is a tenet of economics that concentration in a dynamic industry can foster innovation, and new entrants will attempt to enter a consolidated market. It is also frustrating to incumbents.

In the past five years the three ATI joint venture virtual airlines have increased capacity on the Atlantic by an annual average 4%.

In the same period the Gulf superconnectors have grown by an average annual 23% to account for nearly 9% of the capacity; long haul low cost carriers (as exemplified by Norwegian) have grown by an average 19% to account for a 6% market share. It is these two who have provided the growth in the market.

They have also encountered significant opposition from the three US Majors. The latter’s  “Partnership for Open and Fair Skies” seems to have built an effective lobby to the new administration in the US — claiming now to have the support of 300 members of Congress — to the point of getting the addition of a specific tax amendment targeted at the Gulf carriers.

Norwegian meanwhile endured much resistance from the US to the establishment of its Irish and UK AOCs. It has nevertheless had some success: on the London to Los Angeles market for example, according to DoT Form 41 data, it seems to have achieved a 11% share of the market since starting operations in 2014 — roughly equivalent to the absolute growth in the market in the past three years.

No wonder the encumbents are worried. The US carriers do not have the corporate structures (or maybe the imagination) to allow them to counter the threat; but the European majors — respectively with IAG’s Level, Lufthansa’s Eurowings and (maybe) Air France’s Juno — and Air Canada (with Air Canada Rouge) do. 

Meanwhile the next disruptive element on the Atlantic may well be the introduction of efficient long range short haul aircraft on thin routes further bypassing the traditional hubs. Norwegian is already trialling this on select secondary route-pairs using its 737-MAX. The A321LRneo with its slightly longer range could be more of a game changer. A main advantage is that these aircraft can combine short and longer haul operations within a network.

At the IAG annual investor day this month, Aer Lingus' CEO Stephen Kavanagh highlighted his plans for the exploit of the 12 A321s he aims to have in service by 2021, emphasising that half of the 55m US citizens claiming Irish ancestry live within reach of Dublin with the new aircraft (and there are only 6m people in the whole of Ireland).

And then there is JetBlue — based in New York, the prime US gateway on the Atlantic — with 60 A321neos on order.


Star   EWR NYC† IAD ORD YYZ LAX SFO Total Atlantic
FRA 100% 68% 100% 100% 95% 100% 100% 82%
BRU 100% 71% 100% 100% 100% 76%
MUC 100% 100% 100% 100% 100% 100% 100% 87%
VIE 100% 100% 100% 100% 100% 100% 100%
ZRH 100% 71% 100% 100% 100% 100% 100% 88%
CDG 72% 57% 100% 100% 100% 100% 66%
PAR‡ 73% 62% 100% 100% 100% 100%    
AMS 100% 87% 100% 100% 100% 100% 83%
LHR 61% 46% 71% 81% 100% 54% 86% 56%
LON§ 50% 50% 71% 81% 100% 49% 86%  
MAD 64% 56% 100% 73% 100% 100% 100% 67%
DUB 75% 63% 89% 100% 56% 100% 68%

Source: Schedules data, 2017 Notes: North Atlantic includes hub to hub and all other routes to/from the hub airport. † NYC includes JFK and Newark. PAR includes Roissy Charles de Gaulle and Orly. § LON includes Heathrow and Gatwick.

gnuplot Produced by GNUPLOT 5.0 patchlevel 6 0 20 40 60 80 100 120 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 68% Seats (m) Others gnuplot_plot_2 SkyTeam ATI Star ATI oneworld ATI Gulf Carriers Long Haul low cost SkyTeam ATI Star ATI oneworld ATI Gulf Carriers Long Haul low cost Iceland
gnuplot Produced by GNUPLOT 5.0 patchlevel 6 -5% 0% 5% 10% 15% 20% 2010 2011 2012 2013 2014 2015 2016 2017 Operating margin (%) Atlantic Domestic Atlantic Domestic

Source: DoT Form 41. Rolling twelve months.


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