Iata calls for relaxation of airline merger rules

Iata calls for relaxation of airline merger rules

Governments are being urged to take a more relaxed view on global airline mergers because consolidation is seen as a key driver of profits.

The call came in an Iata study supported by analysis from McKinsey showing that returns on capital invested in airlines have improved in recent years, but are still far below what investors would normally expect to earn.

Director general and chief executive Tony Tyler (pictured) said: “The airline industry has created tremendous value for its customers and the wider economies we serve.

"Aviation supports some 57 million jobs globally and we make possible $2.2 trillion worth of economic activity. By value, over 35% of the goods traded internationally are transported by air.

“But in the 2004-2011 period, investors would have earned $17 billion more annually by taking their capital and investing it in bonds and equities of similar risk.

“Unless we find ways to improve returns for our investors it may prove difficult to attract the $4-5 trillion of capital we need to serve the expansion in connectivity over the next two decades, the vast majority of which will support the growth of developing economies.”

He said that airlines “face a hyper-fragmented industry structure owing to government policies that discourage cross-border consolidation. There is plenty of room for some fresh thinking on all accounts”.

The biggest cost for airlines is fuel and companies in this sector benefited from an estimated $16-48 billion of their annual net profits generated by air transport.

The most profitable part of the rest of the value chain is in distribution, with the computer reservation systems businesses of the three global distribution system companies generating an average return on invested capital (ROIC) of 20%, followed by freight forwarders with an ROIC of 15%, according to the research.


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