Bangkok--3 Jun--Centre for Asia Pacific Aviation This is the Perspective from today's edition of Europe Airline Daily - the comprehensive new pre-digested daily update on strategic news from Europe, saving you time and keeping you right up to date. Complimentary subscriptions to this report are currently available. Register now! A combination of US-EU open skies, the US airline meltdown, high fuel prices and the rapidly changing regulatory structure is delivering an array of discussions about mergers and acquisitions in Europe. Many of these will eventually have significant implications for airports as well. US airlines, Delta and Northwest, decided to merge into one company under the name Delta Air Lines. After persistent efforts United and US Airways accepted that they would not be able to consummate a merger too, but US Airways will continue to look, as a preferred option to Chapter 11 bankruptcy. Continental, was left with little choice but to go its own way, probably making the jump to Star or oneworld . At the same time, partly as a reaction to American events, there is a lot of talk - with the accent on talk - about further airline industry consolidation in Europe. Until recently, Air France-KLM looked likely to acquire failing Alitalia, a logical move, considering that both Air France and KLM have each separately had previous cooperative arrangements with Alitalia, and that the three carriers all belong to the SkyTeam alliance. So does Aeroflot, which announced, after a friendly meeting between Messrs Berlusconi and Putin on the island of Sardinia, that it was also interested in taking a share in the nearly bankrupt estate of Alitalia. In Aeroflot’s case, that would have to be a minority share, since Aeroflot is not a Community air carrier in the sense of EU air transport legislation. The freshly re-elected Mr Berlusconi, serving his third term as Italian Prime Minister, clearly favours a domestic solution to Alitalia’s financial predicament, where Italian (private) investors would acquire Alitalia. In the meantime, Alitalia is kept afloat by governmental support that the EU Commission considers to be illegal State aid. On 17-May-08, Air France—KLM chief, Jean-Cyril Spinetta, announced that Europe’s largest carrier might no longer be interested in taking over the Italian carrier, citing, among other things, ever rising fuel costs helping to make a take-over financially unattractive. Meanwhile, with the beginning of the Summer airline schedule, Alitalia dropped most of its services at Milan’s Malpensa. The wisdom of this move, apparently made in anticipation of a possible take over by Air France—KLM, is arguable, since Milan remains Europe’s richest premium market. In any event, this will make it possible for other EU carriers to move massively into Malpensa, if considered sufficiently commercially attractive. Lufthansa (or Lufthansa-Swiss - the carriers are less open to use their joint affiliation publicly than is Air France-KLM) might see this as a useful option, but Air France will be anxious to avoid their biggest opponents taking a hold in the south. Another option for Lufthansa is to enlarge its corporate entity by acquiring Austrian, which currently has an alliance agreement with the German carrier. The invitation to do so however, says Lufthansa, will have to come from Austrian itself, which recently terminated unfruitful talks with Saudi interests about a major capital investment. Lufthansa is also reportedly interested in operating more extensively out of Brussels (Zaventem), currently under-served by major carriers — despite the fact that it is Europe’s political version of Reagan (National) Airport in Washington DC. Such a move into Brussels National Airport would drive a geographical wedge between Air France-KLM’s dual hubs of Schiphol Amsterdam Airport and Paris’ Charles de Gaulle (Roissy) Airport. As the two largest European continental air carriers continue actively to chase acquisitions, British Airways is maintaining a low profile. This no doubt partly because that it is a good idea, after the shambles of the opening of Terminal 5 at Heathrow Airport. But it is also because BA, wisely, seldom engages in the gossip circles of European airline interests. Although its margins are higher than the others, British Airways is less well positioned for the future than the Air France and Lufthansa families. BA has an older fleet, thus higher fuel costs, with less favourable fuel hedging contracts than Air France and Lufthansa. For better or worse, it seems more interested into moving into the American domestic market, in the second phase of the EU-US air transport agreement in 2010, than into a move into the arena of EU air carrier interests. Its involvement in Spain’s Iberia, in which it has had a minority share for several years, is the exception. Austrian, Alitalia, and Iberia are not the only ones looking left out — and in Iberia’s case, notwithstanding that Madrid’s Barajas Airport recently surpassed Amsterdam’s Schiphol as the fourth largest airport in Europe. In the south, Olympic is heading into deeper waters as southern Europe’s economies cool quickly and while fuel costs remain at their present excessive levels. To the North, Star Alliance member, SAS, also remains in no-man’s land, unless its restructuring is more successful than most people expect. There are exceptions. TAP of Portugal, on the other hand, is doing relatively well as an ethnic hub carrier between Europe, via its Lisbon hub, to and from Brazil and former Portuguese possessions in Africa. Somehow, in the eventually inevitable process of European airline industry consolidation, the smaller markets — and their carriers in most cases - will have to be provided for. Nothing, however, seems to be moving rapidly in the EU airline daily air transport market! This Perspective was provided by Peter Haanappel, of Leiden University (Neths) and McGill University (Canada), with Peter Harbison, Executive Chairman of the Centre for Aviation.