European airlines urged to embrace more consolidation

PHOENIX (LSE: PHNX.L - news) , March 9 (Reuters) - European airlines face further restructuring and consolidation to close a gap in profitability with industry kingpins in North America, aviation experts said on Monday.

European airlines are projected to make $10 billion of the $86 billion in profits expected to flow into the industry between 2010 and 2015, with North American airlines accounting for $40 billion after hefty restructuring.

That is partly because European operators have been less disciplined than merged U.S. carriers in keeping a lid on capacity, leaving themselves vulnerable to any downturn in demand, said John Luth, chief executive of aviation advisory firm Seabury Group.

Asked in an interview whether Europe's airlines would have to consolidate to secure growth, he said it is inevitable but warned that they must first put their finances in order.

"The airlines that consolidated in the U.S. all got fixed first. They didn't use consolidation to fix themselves," Luth said.

Europe's top four airlines controlled 47 percent of European capacity in 2014, up two percentage points over 10 years, according to Seabury data presented at an air finance conference in Phoenix.

In the United States, the four majors controlled 79 percent of their market, up 22 percentage points over the same period.

A senior executive from Germany's Lufthansa, which has snapped up a number of smaller carriers, said the number of airlines would shrink in coming years

"A lot of national airlines still exist in Europe. But more and more people are accepting that this is not a viable thing any more," Nico Buchholz, Lufthansa's executive vice-president of fleet management, told the Istat conference.

Lufthansa and IAG will be among the long-term survivors, Buchholz said. He made no mention of Air France-KLM (Other OTC: AFLYY - news) , which has issued a series of profit warnings in the past year.

British Airways owner IAG made a 1.36 billion euro ($1.5 billion) bid for Aer Lingus (Other OTC: AELGF - news) in January. The Irish carrier's board recommended the offer to shareholders but the deal has stalled because of political opposition. (Reporting by Tim Hepher; Editing by David Goodman)