Last year, IAG, the parent company of British Airways, announced its intention to acquire Air Europa for €1bn.
This was to include Air Europa resigning from the SkyTeam alliance and adopting Avios.
Air Europa is the 3rd biggest airline in Spain. The acquisition, according to IAG at the time, would turn Madrid into a genuine ‘5th European hub’ city alongside London, Frankfurt, Paris and Amsterdam.
IAG would 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 would operate 73% of all domestic flights.
In recent months, IAG has faced strong questioning about its acquisition of Air Europa given some of the cost cutting measures taking place across the group (the latest update of which is here). What outgoing IAG CEO Willie Walsh has made clear, however, is that this acquisition is happening under Iberia’s wing. He feels that it has no impact on pay and contract terms negotiations at British Airways.
IAG “wants a 50% discount”
In recent months IAG has been hedging its bets and said it would be ‘reviewing’ the acquisition of Air Europa.
It doesn’t look like IAG has been put off. Reuters, quoting Spanish newspaper Cinco Dias suggests that IAG and Iberia are keen to proceed. They are close to an agreement with Air Europa owners Globalia to halve the €1 billion acquisition price to around the €500 million to €600 million mark.
The Reuters report is here.
Is this too much or little? It isn’t clear. You’d need to factor in:
how much of Air Europa’s debt will be taken on by IAG and
what assets (basically unmortgaged aircraft) are included
As Globalia is a private company, this information is not easily available.
On the face of it, Globalia should be delighted that IAG still wants to pay €500 million given how the aviation industry has changed since November 2019. Even if the deal does come with a number of debt-free aircraft included, it is not as if IAG is short of planes at the moment ….
Are there competition concerns?
Oh yes.
Concerns about competition haven’t gone away, and this deal increases the size of Iberia by 50% assuming you treat Air Europa and Iberia as one airline.
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. There has been talk of IAG creating a new domestic airline from parts of Air Europa, Iberia and Vueling which it would then sell, in effect creating a competitor to itself.
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.
About Head for Points
Are competition concerns really valid any more? “Sure, we’ll happily accept moderations. Of course you’ll follow the model you established at FRA and MUC, won’t you?”
And even if not, no one else would be queuing up to fly at the moment, so it’s an opportune moment to strike.
Globalia should hold firm on price though, unless they’re desperate to sell. IAG is opportunistic and will pay.
Perhaps if they don’t let IAG buy it they will let Lufthansa =)
now that’s more like it
I think Globalia will want whatever they can get right now, they can’t be far from going bankrupt, and in that case they would get zilch, and Iberia still benefits from the loss of a competitor
The strange thing about Air Europa is how it ever survived at all after the demise so long ago in 1991 of its parent, Intasun Leisure. Yet survive it did and with a very large and prominent office base at Mallorca Airport (nee Son San Juan Airport).
I suppose if it is swallowed up in to IAG then questions will clearly arise as to its role in addition to the existing two IAG Spanish low cost operations of both Vueling and Iberia Express.
As it already didn’t make much sense to have two lost airlines owned by IAG (other than that the function of Iberia Express seemed to be to turn loss making Iberia Main routes in to profit making low cost ones without it being too obvious that had happened as would have been the case with direct Vuelingisation) the question surely has to be how it can make sense for IAG to have a third Spanish low cost operation when it doesn’t have one in the UK. That is apart of course from British Airways Basic European short haul economy fares with no luggage and travelling at the very back of the plane, which effectively amount to a low cost steerage carrier sharing the same aircraft as one also operating expensive Club Class seats, which is probably a far more logical solution for an airline that has so many fewer domestic regional routes, or at least in passenger number terms, than in Spain.
So perhaps IAG will learn from the BA model and shortly collapse its four Spanish airlines back in to one with lower cost seats at the very back of the plane (and often you will only be allocated a middle seat at the back on BA if travelling alone and also not paying extra for an allocated seat) for those insistent on buying a steerage class level ticket competing directly on price with Ryanair and Jet2………..
“sharing the same aircraft as one also operating expensive Club Class seats”
You mean expensive Club Class tickets. The seats are cheap (and nasty). 😉
Spamish-language site Preferente.com reports that the Unite union in the UK are attempting to frustrate this deal with threats of a complaint to the European Commission if it gets anf Spanish government aid, as part of their (quixotic?) battle with BA management.
https://www.preferente.com/noticias-de-transportes/noticias-de-aerolineas/iberia-air-europa-ofensiva-para-frustar-la-operacion-302263.html
Have Unite got nothing better to spend their time on?
If IAG do succeed in buying Air Europa, I hate to think what will happen to future Spanish domestic flight pricing…
Air Europa are a poor quality airline in my experience making Vuelling seem good.
My guess is IAG want it for its South American destinations which rarely overlap with Iberia and then they will dump one way or the other the majority of the domestic routes.
The plan was for IAG to give a large number of slots and possibly some aircraft to Volotea in order to pass the competition regulators. However for domestic travel in Spain it’s much easier to take the high speed AVE trains rather than flying
Volotea is tiny though. Realistically it needs the planes AND a huge amount of cash. It was Volotea I was referring to in the article – it has an operating licence so IAG could technically inject a pile of cash, planes and routes into it. Volotea would grow by 5-10x however I imagine.
Volotea is not that small: 33 airplanes in total. They are very small in Spain though.
Hopefully IAG will spend some of there money to treat the British Airways staff with dignity, this company should be ashamed and be stripped of Heathrow slots for what it has done to its staff. Absolutely disgusting.