11 September 2008

Smaller sharks still need to feed, new sharks vacancy?

So if there is to be a consolidation then in the normal light of day you expect stronger players to eat weaker ones. For many years this type of activity was off limits to Government owned carriers or even quasi-state owned entities. Seems like this isn't the case any more.

So we have THY acquiring what passes for the Bosnian state carrier - BH Airlines. Air Malawi is being acquired by Comair - erroneously described as a subsidiary of BA - while they have BA partial ownership the team in JNB would be quite miffed if they felt they were regarded as a BA Sub. We also have the Spanish Government asking Iberia to take over Spanair before it collapses completely. We have Air Baltic puffing itself up and saying they would perhaps acquire SAS... Either way - SAS will divest its shareholding in the Latvian based carrier.

And then finally we have a great quote from Tom Horton (not the fast food chain in Canada that is TIM Horton...) on consolidation:

"... I think the entire global airline industry has more consolidation in its future...The airplanes that we're grounding are older generation planes. They burn 35% more fuel per seat than the new generation planes. So, when you ground those planes, it would be very difficult to bring them back, not just in operations cost but also in maintenance infrastructure. So, I would characterize those as permanent capacity reductions,"

Interestingly enough I would challenge that assertion. At pre-$140pp oil pricing SH&E did a study that showed the economics of a 737-700 vs a MD80 on a per seat basis crosses around $105pp. Now with the large number of MD80s AA is shedding and not many people are buying that will drive down the cost of the hardware making that number effectively favor the older plane.

I will say again - I believe the time is right for new entrants in many markets. Finding financing however is another story. The US capacity reductions have created wholesale opportunities in the 100 seater market across the board. You have many markets where a plane of the size of a 737-500 would be ideal in sectors of about 1-1.5 hours where prices have skyrocketed.

1 comment:

Anonymous said...

Very interesting - do you have more details on the 737 vs MD-80 analysis?