Pondhopping: Changes in Airline Competition and Service Patterns on the North Atlantic

This paper draws upon a range of research and data sources to examine recent developments in the North Atlantic air transport market. Over the last decade, major changes to the industry structure have taken place including mergers between United-Continental, Delta-Northwest, American-US Airways, British Airways-Iberia-bmi-Aer Lingus (IAG). The alliance between British Airways and American has gained anti-trust immunity and acquired the former services of US Airways while Delta has formed a new Joint Venture with Virgin Atlantic. Icelandair and Wow have developed budget hub operations between the two regions via Reykjavik and in the last two years, further disruption has been led by Norwegian’s low-cost transatlantic services, joined now by low-cost offerings from WestJet, Air Canada Rouge and IAG’s Level. The extent to which the network carriers are trying to tap a new market through these offerings versus merely frustrating the efforts of their upstart rivals is discussed. Capacity and frequency data from Innovata and OAG is used to examine the development of air services along with traffic data from ICAO, UK CAA and US DoT. It is shown that the alliances have curbed capacity, increased load factors and reduced the influence of secondary hubs in favour of the major cities and gateways. New non-stop routes have been facilitated by technological developments such as the 787 and 737Max. A case study is made of London and New York (the two largest markets) and the impact of airline consolidation through mergers and alliances on market concentration is assessed using the Herfindahl - Hirschman Index (HHI). This is applied to both frequency (flights/week) and capacity (seats/week). Capacity is shown to be more concentrated as the stronger players are able to utilise larger aircraft. Traffic and load factors on North Atlantic routes from these cities are also analysed in parallel. It is found that concentration in London has increased through the growing dominance of British Airways-American although tempered by the growth of Delta-Virgin Atlantic as a strong second force on the North Atlantic while United, which is one of the legacy operators through its acquisition of Pan Am’s London rights, has lost ground. The New York market demonstrates a different trend with the move of Continental from SkyTeam to the Star Alliance (and subsequent merger with United) creating a more even split between the three alliance groups on North Atlantic services from that city. The price advantage of connections through hubs over direct flights has often diminished since these all became controlled by the same three major airline and alliance groups. It is concluded that the North Atlantic has become an oligopolistic market following recent industry consolidation but there are some incipient signs that this is being challenged by the new entrants with point to point services. Although there is a potential niche for direct transatlantic service from secondary airports and regional cities, it is not necessarily a large or low-cost one and the challenge will be whether the required combination of capacity, traffic volume and yields can be achieved to compete with the network carriers and the high frequencies from their reinvigorated hubs.