IAG finally agrees to buy Air Europa, brand to remain, leaving SkyTeam?

IAG, the parent company of British Airways, has finally struck a deal to buy the remaining 80% stake in Spanish airline Air Europa that it does not own for €400 million.

The seller is Spanish leisure conglomerate Globalia group.

This is a real coup for IAG, because there had been substantial political push back since the deal was first attempted in 2019. It gives IAG virtual dominance of domestic flights in Spain with the top three Spanish airlines by passenger numbers – Vueling, Iberia and Air Europa – now under its control.

The European Union came out against the acquisition of Air Europa in July 2021. It said:

“The Commission is concerned that the proposed transaction could significantly reduce competition on 70 origin and destination (O&D) city pairs within and to/from Spain, on which both airlines offer direct services. On some routes, IAG and Air Europa have been the only two airlines operating.

The Commission is also concerned about the effect of the proposed transaction on routes on which other airlines rely on Air Europa’s domestic and short-haul network for their own operations at the Madrid airport and a number of other EU airports. Without Air Europa’s feeder traffic, some airlines may decide to terminate their services to international destinations also served by IAG, reducing choice for travellers.“

Whilst probably not the killer blow, the UK Competition & Markets Authority also decided to flex its muscles, announcing an investigation in November 2021.

This was due to the potential for:

• reduced competition, either now or in the future, between the UK and Madrid
• reduced competition for British Airways on long-haul routes where Air Europa offers low fares for UK customers willing to change aircraft in Madrid

Once acquired, 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 will operate 73% of all domestic flights. The next biggest airline is Ryanair with 15%. The fourth biggest is BinterCanarias with 9% which is focused on the Canary Islands.

IAG’s view had been that, by adding Air Europa to Iberia, it could create a hub in Madrid that could eventually compete with Heathrow, Amsterdam and Frankfurt.

In truth, the reason the deal is expected to be nodded through is that Air Europa would probably not have survived otherwise. The Spanish Government is believed to have been working to ensure approval. The European Commission may still have other ideas, of course.

Air Europa will become part of Iberia

Whilst Air Europa will keep its existing branding, it will be managed by Iberia. It will allow IAG to expand further into Latin America, the Caribbean and Asia from Madrid.

The airline owns 50 aircraft with a further 15 on order, comprising five Boeing 787-9 and ten Boeing 737 MAX planes. Deliveries are due between 2024 and 2026.

IAG will be staggering the €400 million payment, of which €100 million will be in IAG shares. IAG’s initial 20% shareholding was obtained in March 2022 when it provided the stricken carrier with €100 million as a convertible loan.

Given that IAG had initially agreed to pay €1 billion for the carrier in 2019, it is an attractive result, equivalent to the British Airways acquisition of bmi British Midland a decade ago.

What happens on the loyalty front?

Air Europa is a little known member of the SkyTeam alliance, which includes Delta Air Lines and – from next week – Virgin Atlantic.

IAG had previously confirmed that Air Europa would be leaving the SkyTeam alliance and adopting Avios if the deal succeeds.

Air Europa currently has its own frequent flyer scheme called SUMA.  You can find full details on the Air Europa website here.

As a member of SkyTeam, you can currently credit miles from any SkyTeam flight to Air Europa SUMA – Delta, Air France, KLM, Vietnam, Aeroflot, Korean etc.

There is a little game here you could play. Any SkyTeam flights you credit to Air Europa SUMA in the period between now and when it resigns from SkyTeam should be converted into Avios at some point.

I would expect SkyTeam airlines in Europe to launch some sort of status match programme to mop up Air Europa elite members.

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