Aer Lingus turns down formal takeover bid from British Airways

British Airways’s parent company, International Consolidated Airlines Group SA, announced yesterday that it had made a takeover approach to Aer Lingus.  The board of Aer Lingus rejected the offer.

The idea that Aer Lingus would make an excellent takeover target for BA is hardly new.  To some extent, the surprise is that they chose to move now when it could have been acquired for a fraction of the cost a few years ago.  Aer Lingus has been turned around and is being bullish about its expanding long-haul network with fully flat business class seats on the way in 2015.

The obvious appeal for British Airways is the Aer Lingus landing slots at Heathrow.  You may be surprised to know that Aer Lingus is 3rd largest owner of Heathrow slots at 3% (23 daily pairs).  With recent transactions continuing to value slots at $20m – $30m per pair, Aer Lingus is sitting on a hugely valuable asset.

(Most people have forgetten that, when Ryanair bid for Aer Lingus in 2012, BA announced a side deal with Ryanair to take 85% of the Aer Lingus Heathrow slots if it succeeded.  The bid eventually failed.)

Aer Lingus

It isn’t that simple, of course.  The Irish Government has a 25.1% shareholding in Aer Lingus.  They are hugely unlikely to agree to any transaction which sees British Airways slash Aer Lingus services into Heathrow.  That said, it would be easy enough for BA to give ‘undertakings’ which it conveniently forgets about a couple of years later.

The other major shareholder in Aer Lingus is Ryanair, with a 29.8% stake.  With Ryanair now blocked from increasing that stake – and at risk of having to sell down to 5% if their Court of Appeal ruling goes against them next year – the company would probably be happy to exit if it meant a decent profit.  Ryanair would, of course, be quietly pleased if British Airways decided to wind down the Aer Lingus operation at Heathrow.

Vueling, the low cost Spanish airline owned by IAG, is an interesting template for Aer Lingus.  When IAG took full control of Vueling last year, they made it clear that it would NOT be merged into (higher cost) Iberia.  Vueling is proving very successful and, with innovations such as wi-fi on its short haul flights, is making its big brother and sister look a little second-rate.

(Of course, British Airways has been quietly taking over the slots that Vueling had at Heathrow and it no longer operates from the airport.)

Vueling

Aer Lingus may survive in its own right under IAG ownership, although there is far less potential for it than there is with Vueling.  After all, if IAG wants to start a low cost operation in, say, Hungary, it has Vueling for that.  I doubt Aer Lingus will be opening hubs across Europe.

Any takeover would also involve another inquiry into the control of Heathrow landing slots which itself would get tied into the debate over a third runway.

This one seems set to keep me in article material for much of 2015 …..

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Comments

  1. Poincianakings says:

    I think Vueling do still operate from LHR. Palma, Florence, La Crouna and a couple of others IIRC.

    • Vueling do operate from LHR T3. BA proved below the wing services to them, amongst others.

  2. Would love to see Virgin/Delta give it a go, might even bring Little Red back from an early grave.

  3. Mr Bridge says:

    its not dead, IAG (willie) was probably testing the water 1ST, and mr walsh does love a bargain.

    what do you think the benefits to (HFP) customers might be in a takeover?

    • None!

      Aer Lingus reward seats may finally appear on ba.com, but that means the general public will start booking them and it will stop being a secret …..

      The US services would have the full BA surcharge attached – so another £350 per person return – because BA would add them to the transatlantic joint venture operation.

      • If a full merger was to happen presumably Aer Lingus’ Gold Circle loyalty scheme would be rolled into Avios as was the case with BMI. Are there any interesting arbitrage opportunites?

        • It would probably convert to an Avios -earning scheme, I agree. I’m not going to start digging into arbitrages until the news is more concrete though, and you wouldn’t be certain of arbitraging anything until the Gold Circle to Avios conversion rate was published.

  4. BA had a low cost airline that competed with BA, albeit from Stanny. They sold it. Why would they want another one?

    • The difference is that IAG is not BA, GO was never universally supported within BA as its culture is and has never been low cost. The creation of the IAG group allows a different set of management to bring about the benefits of scale and allows the individual management teams of the airlines to optimise what they know best.

  5. Oh! Matron! says:

    Surely, having more than 50% of the slots already at Heathrow is anticompetitive, and any more of them would be appalling. If Heathrow wants to survive against the likes of Schipol and Frankfurt, it needs to allow itself to become a hub for other airlines, not just for BA

    • The argument here is that Air France controls more of CDG and Lufty controls more of Frankfurt than BA controls at Heathrow. That ignore the status of Heathrow as a hub, though. You should probably also include in BA’s number flights by other airlines but where BA effectively splits the revenue, eg AA on US routes, JAL on Japan etc.

      • Blackberryaddict says:

        Or KLM/AF at AMS. But don’t forget LH also controls SK, SN, LX and OS flights at FRA, plus all the revenue shares with its Star partners.
        I’d go the other way and say that BA plus partners need to own an even larger share of LHR to be successful.

    • Iv never seen prices as low as they are now with ba . So to say it’s anti competitive is incorrect. I often have return Europe flights sub £100 , being a gold and getting lounge access, extra bag, avios, etc I think ba is f@@king brilliant. Regularly they have flights to ny and dubai for sub £400 in Eco, and sub £700 in premium. Compare that to flight prices 10 and 20 yeArs ago. (With inflation). So what if it’s anti competitive . I’m all for the more landing slots to ba the better.

  6. BA Clubworld sale out of Dub, CPH & BRU.

    • Cheers for heads up. Not as good as previous but not bad at all

    • Dublin to Hawaii now Euro 1,395 in the sale! Specific travel dates required but it does price.

      • I’m up for that , What are the dates rob?

        • * Buy 28 days in advance
          * Must include a Saturday night
          * Outbound travel must be between 23/12/14-02/01/15, 27/03/15-12/04/15, 01/07/15-31/08/15, 22/11/15-30/11/15

          You should try pricing it on aa.com as well as you may be offered different routings. If doing this for tier points you want to go via New York and LA. If doing this for a cheap holiday, flying direct to LA from London is obviously easier.

  7. BA today: they needed to offload a few people and offered us £250 x 5 = £1250 to take the evening flight instead (hanging around for 7 hours).

    Wife said no 😉

    Squills would have said yes but what the hell lol

    She wear de trousers

    • Had a similar offer in Dubai in Easter 2013 but turned it down (and it was for a lot more than that) as my youngest was too young at the time and we didn’t want an overnight back.

      That said, when I was young I used to specialise in getting myself offloaded from Air Canada flights!

      • Well I reckon I could have bribed our 3 with a lot less than £100 of goodies to keep them happy for a few hours, the wife with £150 – and banked a cool grand!

    • Yes they were Xmas cards! If that jogs your memory, it was only a couple of days ago! Tnx

  8. I was surprised to find out that aer lingus held the 3rd largest landing slot at Heathrow and found it quite interesting, so I looked it up and found that they are actually the fourth largest landing slot holder at Heathrow with a 3.5% share, via, http://www.acl-uk.org/UserFiles/File/LHR%20S14%20Start%20of%20Season%20report.pdf

    • V.interesting read

    • Thanks Oliver. I tried to find these numbers when I wrote the piece but couldn’t, so I just took the number from the other press reports.

      Does the LH number reflect the transition to Germanwings of most of short-haul though? Only LHR-FRA and LHR-MUC will remain LH branded and I doubt there are 250 departures a week to those two. That said, it is a technical point at LH owns Germanwings.

      • thant then asks the question should the numbers for aa and united be added together or even ba iberia and aa

        • I would assume that next year aa and United will be added together thanks to their 2015 merger, but Ba, Iberia and aa are partners, not part of one company like Lufthansa and Germanwings so will remain separate.

      • Yes you make a good point there that I had not thought of, Lufthansa only flies to/from Heathrow and, Munich, Duaseldorf and Frankfurt whereas Germanwings flies to/from Heathrow and, Berlin, Cologne, Hamburg and Stuttgart. All of the German wings short haul flights will substantially increase the landing slot number so I would assume that you are right.