Issue Overview

Air France-KLM’s Scandinavian Gambit

Air France-KLM’s Scandinavian Gambit

October 9th, 2023 at 12:32 AM EDT
21 min read

Issue Overview

Air France-KLM isn’t kidding. It wants to participate in industry consolidation, as it’s emphasized repeatedly in recent earnings calls. Now it’s putting some money where its mouth is, striking a deal to buy a fifth of Scandanavia’s SAS, with a possibility of taking full control after two years.

For SAS, new money from Air France-KLM and others means the end of its bankruptcy is near. Will both carriers ultimately benefit? For Air France-KLM, will investing in SAS prove another major success story, like Lufthansa investing in Swiss or IAG investing in Aer Lingus? Or will it look more like Air France-KLM’s prior travails with Alitalia? Let’s hope for its sake that it’s nothing remotely that bad.

The current state of demand for Europe’s airlines certainly isn’t bad, at least according to IAG. Its CEO Luis Gallego told Bloomberg News that demand in fact remains strong, and premium leisure demand in particular is “amazing.” One of the big questions of third quarter airline earnings season — perhaps the biggest question of all — is to what extent summertime demand strength has continued into the fall.

Third quarter earnings season in fact starts this week; Thursday to be precise, with Delta scheduled to report. There’s no reason to believe at this point that Delta’s demand assessment will be anything but positive. We’ll soon hear for sure. In the meantime, oil prices have happily moved downward, with the WTI benchmark back in the low $80s per gallon. Just a week earlier we were at $94.

Upward is the direction of United’s average aircraft size, as it emphasized again by buying still more A321neos. It’s buying more 787-9s too, convinced of plentiful opportunities abroad.

Opportunities abound for Latam, Cathay Pacific, and Allegiant as well, all of them ordering more planes last week. While some airlines grow, however, others are buried — last week featured funeral services for Ecuador’s Equair, a small rival to Latam.

Back in Europe, with SAS now removed from the chessboard, all eyes are on TAP Air Portugal. Air France-KLM would like to sink its teeth into that airline as well. But so does IAG (Gallego said so in the Bloomberg interview). And so might Lufthansa.

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