Consolidation of European aviation market the way to go?

German airline Lufthansa (LHAG.DE) wants to take part in much-needed industry consolidation in Europe so carriers can compete better with U.S. and Asian rivals, Chief Executive Carsten Spohr said on Thursday.
Spohr told an annual shareholders meeting in Hamburg on Thursday that the five largest airlines in the United States have an 80 percent share of the market, while in Europe the top five have just 40 percent.
“Consolidation is a part of what needs to happen in Europe in order to make the sector more competitive when compared to the United States and Asia,” Spohr said.
“As Europe’s largest airline, we want to take part in consolidation, not just be a bystander,” he told investors.
Lufthansa said late on Wednesday it was looking at ways to bring part-owned Brussels Airlines under its low-cost Eurowings brand, though the Islamic State attacks in Brussels have pushed back the deadline for a decision to August.
Sources have also told Reuters that Lufthansa is considering partnerships, or even takeovers, of Scandanavian carrier SAS (SAS.ST) and Condor, the airline that belonged to Lufthansa for decades before being bought by Thomas Cook (TCG.L).
Lufthansa is already one of the few European airlines to have driven merger activity in the region, snapping up Swiss, Austrian and bmi several years ago.
But the restructuring of Austrian proved time consuming, while Lufthansa eventually sold British Midland to British Airways parent IAG (ICAG.L) in 2012, meaning not all shareholders are in favour of further merger forays.
“The desire for size has not always suited Lufthansa,” Ingo Speich, portfolio manager at shareholder Union Investment, told the meeting.
“Instead of casting an eye over Brussels, Condor or SAS, Lufthansa should invest the capital into its balance sheet, restructuring and renewing its fleet,” Speich said.
IAG too has been on a buying charge, adding Vueling and Aer Lingus to a stable that started with British Airways and Iberia.
British holiday carrier Monarch [MONA.UL] said on Thursday it was considering acquisitions too, while Qatar Airways said on Wednesday it had increased its stake in IAG to 12 percent.
But several analysts and sector bankers have told Reuters they feel there are few major deals to be done, with small deals or cooperation agreements instead more likely.
Ryanair (RYA.I), set to overtake Lufthansa as Europe’s largest carrier this year in terms of passenger numbers, has also said it prefers to grow organically, while Air France-KLM (AIRF.PA) is grappling with a restructuring.
Reuters UK