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More airlines will fold in battle for middle ground, analyst says

Key Points
  • European low-cost carriers have struggled to maintain margins
  • Air Berlin and Monarch Airlines have both gone out of business in 2017
  • Thomas Cook and TUI Airlines identified by an analyst as at risk
Expect Ryanair to recover reputation following recent crisis: IHS Markit

More airlines will collapse as players in the industry do battle in an ever-more-crowded sector, according to one analyst.

In recent months, a loose grip on cost-control allied to high capacity in Europe has led to the demise of low-cost carriers Air Berlin and Monarch Airlines.

John Sneller, head of aviation at IHS Market, said Thursday that airlines are crowding a market sweet spot — and some were bound to lose out.

"Budget airlines are squeezing up. The full-cost airlines are squeezing down. So somewhere in the middle there is going to be some consolidation," he said.

Sneller highlighted UK-based airlines Thomas Cook and rival TUI as two firms that will be battling hard to avoid a dangerous squeeze to margins.

The analyst said firms will be looking to find the correct mix of new fleets, added routes, and competitive pricing in order to maintain profitable flights.

The share price of Thomas Cook plummeted sharply on Wednesday after earnings at its U.K. tour operator business fell by 40 percent in the year to September 30. The firm's share price dropped 13 percent after those results but recovered some ground.

But the wider group saw more encouraging results, driven by growth in Continental Europe and the Nordic region.

Peter Fankhauser, chief executive of Thomas Cook said in the audited results Wednesday that there was "real momentum" in the group's airline division.

"The strong performance of our Group Airline in what has been a difficult year for European aviation is a particularly encouraging sign of our progress," Fankhauser added.

Travel and tourism firm TUI Group, which own TUI Airlines, reiterated guidance in September for at least 10 percent growth in underlying earnings for the financial year.

This article has been updated to reflect a more accurate portrayal of the airline performance at the Thomas Cook Group.