BA sale

IAG to buy Air Europa in a €1bn deal – Air Europa to leave SkyTeam and adopt Avios

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IAG, the parent company of British Airways, has announced the acquisition of Air Europa for €1bn.

Air Europa is the 3rd biggest airline in Spain.  The acquisition, according to IAG, will turn Madrid into a genuine ‘5th European hub’ city alongside London, Frankfurt, Paris and Amsterdam.

Importantly, IAG will become the largest airline group flying between Europe and the Caribbean and Europe and Latin America.  Even more importantly, if you live in Spain, is the fact that IAG will operate 73% of all domestic flights in Spain.

I met the Air Europa CEO last Autumn at an event he sponsored in Mallorca, and later got a tour of their facilities at Palma (see below).  I must admit that I was surprised by the size of the airline, especially the long-haul network, which had gone under my radar.

Note that the acquisition does NOT include the travel agent, ground handling and hotel businesses owned by the parent company, Globalia.

IAG to buy Air Europa

To quote IAG:

“Air Europa is one of the leading private airlines in Spain, operating scheduled domestic and international flights to 69 destinations, including European and long-haul routes to Latin America, the United States of America, the Caribbean and North Africa.

In 2018, Air Europa generated revenue of €2.1 billion and an operating profit of €100 million. It carried 11.8 million passengers in 2018 and ended the year with a fleet of 66 aircraft.

The Board of IAG believes that the transaction would:

• Increase the importance of IAG’s Madrid hub, transforming it into a true rival to Europe’s big four hubs: Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle;

• Unlock further network growth opportunities and re-establish IAG’s South Atlantic leadership; and

• Result in significant customer benefits through providing increased choice and schedule flexibility and greater opportunities to earn and redeem miles”

The Air Europa brand is to be retained, at least for the medium term, and the airline will be a stand-alone profit centre inside IAG.  Despite this, there will clearly be very close co-operation with Iberia covering everything from flight scheduling to codesharing.  It is worth noting that Air Europa is NOT a full service airline in the mould of BA or Iberia (it is nearer to Aer Lingus) and would need substantial changes to its operating model if it was to rebrand as Iberia.

Air Europa will also, subject to approvals, be joining the existing revenue-sharing joint venture agreements, such as the one between BA, American, Iberia and Finnair between Europe and North America.

IAG has confirmed that Air Europa will be adopting Avios.

Are there competition concerns?

Oh yes.

This deal increases the size of Iberia by 50%, assuming you treat them as one airline.

There is no mention of ‘regulatory concerns’ in the IAG press release, but the competition regulators will clearly be taking a close look at this, especially in terms of the Spanish domestic market.

You can tell from the tone of the announcement that IAG will be pushing this as ‘enhancing Madrid’s position in European aviation’ and if there is a price to pay in terms of IAG running the majority of domestic flights in Spain, then so be it …..

Eight airlines control 99.6% of Spanish domestic flights, according to CAPA.  Unfortunately for regulators, IAG will now own the three biggest, running a total of 73% of all domestic flights:

  • Vueling – 32%
  • Iberia – 26%
  • Air Europa – 15%

Ryanair comes joint third, also with 15%.  You then drop to BinterCanarias with 9%, which mainly operates in and to the Canary Islands.

HFP readers in the City will note that the ‘break fee’ on the deal is only €40m.  This is peanuts compared to the size of the transaction and implies to me that IAG expects to have ‘issues’.

IAG to buy Air Europa

And what about Air Europa and SkyTeam?

Intriguingly, the press release (PDF) issued by IAG seems to have forgotten to make any mention of SkyTeam.  However, the full presentation made available to analysts confirms that it will leave in a one-line statement – no further information is given.

With LATAM recently quitting oneworld and presumably switching to SkyTeam following its partnership with Delta, there will be a wry smile on a few faces this morning.

However, there is also no guarantee that Air Europa joins oneworld.  Aer Lingus is not a oneworld member, for example, and the relationship between Air Europa and Iberia will be similar to the one that BA has with Aer Lingus.  If the plan is to fully integrate Air Europa with Iberia within five years or so, there is no point having it join oneworld for a short interim period.

There will be a notice period to serve out with SkyTeam which is probably longer than the time it will take to complete the Air Europa deal (H2 2020).  IAG will probably find itself with a SkyTeam partner for six months or so!

From the point of the view of the average HFP reader, the key benefit here will be an increased number of places to redeem Avios – although this won’t be happening for at least 18 months I imagine.

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Comments

  1. ankomonkey says:

    Isn’t Istanbul yet a major European hub?

  2. Journeying John says:

    OH dear, another 11million or so journeys about to be harmed through underinvestment, profiteering and slashed standards…
    Perhaps this is IAG’s new strategy, buy up the competition and degrade the service to BA levels so that people think it’s the norm?

  3. So purely from a curiousity perspective Amex UK has an airline partnership with BA and Air Europa allowing you to transfer MR points into either scheme. Is the ratio 1/1 for both (I know BA Avios is)? This is with the view that at some point Air Europa miles will transfer accross to Avios at some point and whether this might be a speculative time to transfer a chunk of MR into Air Europa with the view in time they’ll transfer accross to BA or IB at a heftier amount than 1/1. Thoughts anyone? I’m aware of course that this could also work in the negative and that you’d get less Avios for your MR than you started out with but might it be worth a try?

    • Shoestring says:

      given the heavy question mark over deal completion, you risk having a great big chunk of points in an airline you don’t fly 🙂

      but given your arbitrage scenario, you’d have to have some reason to believe that Europa miles will be worth more than Avios come join-up day

      • Yes it’s a big IF and I’m not confident enough to throw a massive amount of MR at the idea but I reckon I could spare say 5000 MR at the notion in the hope that one day I get more Avios back in a transfer than that. I don’t even have a UX frequent flyer membership at the moment and if there’s things such as 90 day rules like with IB to consider, it may not be straight forward.

        Rob/Rhys on the other hand may have slightly more insight however….

        • Isn’t it Spanish MR only?

        • If you’re as light on confidence so as to be talking about risking only 5k MR then you a) should know the answer already and b) your return would be next to nothing so why bother?

          If there was a credit card signup or somesuch that would be valuable and will disappear then thats one thing (eg *wood amex) but theres nothing relevant here I dont think?

    • Charlieface says:

      Not sure what you’re talking about, I don’t see an Air Europa transfer option.

      • UX became a MR transfer partner in July.

      • Collaborator information
        Login to see the registered contributors.
        1 Points Membership Rewards = 1 SUMA Miles

        Estimated transfer time:
        3 working days
        A minimum of
        1 MR points is required

        • Charlieface says:

          I don’t get it. I’m logged in and can’t see it. Nor is it there when I log out. A search fo Suma or Air Europa turns up nothing. This is a UK Gold credit.
          My airline transfers are:
          Alitalia MilleMiglia
          Asia Miles
          British Airways Executive Club
          Delta SkyMiles
          Emirates Skywards
          Etihad Guest
          Finnair Plus
          Flying Blue
          Iberia Plus
          SAS EuroBonus
          Singapore KrysFlyer
          Virgin Atlantic Flying Club

          • guesswho2000 says:

            Looks like they’re part of Amex MR in Spain. They’re not a UK, ICC or AU Membership Rewards partner, having checked my own accounts!

  4. Yorkieflyer says:

    I struggle with the concept of Iberia as a full service carrier frankly if the comparison is to Air Europa. Short haul they road tested the road to the bottom that BA BOB A320 Neo is and long haul if my two recent sectors in J are typical is a disgrace. The flat bed is fine but food would have been rejected by the sadly department British Home Stores Cafe and the service was at a depth unplumbed since my Dad used to try to get his Austin Allegro fixed under warranty

    • Well you do know what happened to British Leyland.
      There are still a few Allegros around and some of them are going for between £1,500- £5,000
      and they are now considered a classic car, (who knew) I know quite a few guys and some gals in my various classic car clubs love the BL vehicles and the various shows that I go to each year there is usually at least 3 Allegros, which are in good condition as they are well looked after.

  5. What’s a break fee please Rob, for us uneducated plebs that aren’t ‘..in the City’?

  6. Slightly OT, but related to Avios. I’ve just tried to redeem e-rewards points for Avios and both IB and BA avios redemptions are showing as “Out of Stock”. Anyone got any ideas?

    • Fenny, Thats a weird message. I am curious how you can redeem.for both IB and BA. I thought you could only be signed up to e-rewards through one FF scheme?

      With BA you can only redeem once every 30 days. It wont allow you to redeem again until the last redemption disappears from your statement page.

      Are you sure you’re it is 30 days since you last did a redemption?

      • Yes, last redemption was 3 Oct, which is why I wanted to do it now, to avoid wasting time.
        I’ve been with e-rewards for years. I don’t remember who I signed up with, but it wasn’t tied to a specific FF scheme. I get various airline & hotel options as well as non-travel related companies. IB is the better option for avios.

    • Meant to add I am in the UK, not sure if US based accounts are different.

    • TokyoFan says:

      Same here – accounts set up through accor years ago got BA and IB options for converting to avios but as of this week all ‘out of stock’ 🙁

  7. Heathrow Flyer says:

    The link to the investor presentation is now dead.

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