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

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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.

IAG finally agrees to buy Air Europa, brand to remain

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 finally agrees to buy Air Europa, brand to remain

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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Category

Iberia and Iberia Plus

Comments (69)

This article is closed to new comments. Feel free to ask your question in the HfP forums.

  • George K says:
    23 Feb23 February 22:37

    I would have spent the 400mn on IT improvements, but that’s just me

    • HB13 says:
      23 Feb23 February 23:00

      Agreed. IT systems for BA/IB is just about the worst around.

    • insider says:
      24 Feb24 February 08:04

      400m to remove a competitor is probably a better result for shareholders

      • Matty says:
        24 Feb24 February 10:40

        Didn’t the shareholders, me included, prop up IAG when they came around with the begging bowl a couple of years ago?

  • His Holyness says:
    23 Feb23 February 22:57

    EU competition rules so rigid except when they aren’t.
    These decisions just cement that despite a Parliament and Commission all the power rests in the Council.

    • Konr says:
      24 Feb24 February 05:22

      Europe isn’t a federation. Wide latitude in choices is still up to the individual states.
      In this situation most likely it will come with heavy concession to be approved. Air Europa is going bust if this doesn’t happen.

  • Jan M says:
    23 Feb23 February 23:09

    With ITA probably leaving SkyTeam as well, it seems that Virgin is joining a sinking ship. Czech Airlines is also not what it was. So there will only be AF/KLM left in Europe.

    • lumma says:
      24 Feb24 February 04:53

      So not much difference between Skyteam and Oneworld in Europe?

    • Stuart says:
      24 Feb24 February 06:48

      TAROM is a SkyTeam member also, for what it’s worth. Although with more aircraft/destinations than Czech Airlines now.

    • Heathrow Flyer says:
      24 Feb24 February 07:49

      Czech Airlines only has one route left – Paris.

    • Jonathan says:
      24 Feb24 February 08:53

      There’s no official word on anything happening with ITA or it’s membership with SkyTeam

      We know that Lufthansa has expressed interest in the airline, but nothing more. Even then there’s guarantees that any merger / takeover will be approved

      Lufthansa group is still Europe’s mega giant in passenger / cargo traffic

    • vlcnc says:
      24 Feb24 February 09:51

      I mean it was always the bin alliance, as mainly low-quality airlines no one else wanted – only good ones are probably KLM, China Airlines and Garuda.

      • SteveW says:
        24 Feb24 February 11:27

        Ironic comment of the day, everyone knows KLM are rubbish.

        • vlcnc says:
          24 Feb24 February 15:57

          I actually find their short-haul product superior to BA’s especially in economy (I don’t see the point in business class in Europe with the silly blocked middle seat) and in terms of long-haul they have a greater diversity of destinations in the world at large compared to BA’s atm.

          • Rob says:
            24 Feb24 February 16:02

            You seriously believe that senior business travellers want to squeezed into a middle seat before connecting to their BA Club Suite flight? The only reason BA do this is that it was costing them a fortune in lost long haul business class bookings.

  • TimM says:
    23 Feb23 February 23:37

    It appears IAG has been predatory for quite some time. If IAG manages in obtaining 73% of all domestic routes that would appear a total failure of competition rules, one way or another.

    • ChrisBCN says:
      24 Feb24 February 00:02

      Expect a small number of the domestic routes to be given to a non-IAG airline.

      Will be curious to see what happens to the most flown domestic route, MAD>BCN. Choosing next Friday at random, there are 21 flights – 14 iberia, 4 Vueling, 3 Air Europa. That would be all IAG. Although of course the real competition there comes from the high speed trains, of which there are 34 next Friday….

      • ChrisBCN says:
        24 Feb24 February 00:07

        What I’m trying to say is, there is a chunk of that 73% covering some monopoly routes that may not be a concern, where there is a viable fast/frequent/similarly priced rail option, as in this example. There’s also very little barrier to entry if Ryanair wanted to join in.

        • Bagoly says:
          24 Feb24 February 09:40

          Interesting.
          The train is 2.5 hours so unless it is capacity-constrained, or artificially expensive I would expect most of the air traffic to be connecting, whether long or short haul?
          The Spanish market has lots of island connections, where there are definitely no trains, and ferries are very slow.
          So it’s made up of sets of routes with very different characteristics.
          Any one metric may be difficult to interpret without breaking things down.

          And the point about (credible) potential competitor activity being almost as important as actual competitor activity is one that I think Brussels understands: Spain-Spain is already Ryanair’s third largest country pair
          http://airserviceone.com/ryanairs-share-of-intra-european-capacity-up-to-16-italy-passes-spain-to-be-1-country-market/

    • Pat says:
      24 Feb24 February 00:28

      None of the airports in Spain (apart from BCN) are slot constrained so Ryanair, Wizz, Easyjet or any other airline in Europe can easily start operating in the Spanish domestic market if they wish.

      Also Spain has an extensive rail network so in reality IAG has <50% share of domestic travellers.

      • Dubious says:
        24 Feb24 February 09:51

        Not so easy.
        Madrid Barajas,
        Alicante,
        Bilbao,
        Fuerteventura,
        Grab Canaria,
        Lanzarote,
        Malaga,
        Palma Mallorca,
        Tenerife-Sur,
        Valencia,
        …are all Level 3 Slot Constrained, in addition to Barcelona.

        Ibiza and Menorca are also level 3 slot constrained in their summer.

        Then you have:
        Almeria, Asturias, Corvera, Gerona, Granada, Jerez, La Coruna, La Palma, Pamplona, Reus, San Sebastian, Santander, Seville and Tenerife – Norte, plus Ibiza and Menorca in their winter,
        that are level 2 slot coordinated, indicating that are certain times of the day when there is more demand for access than capacity.

    • Konr says:
      24 Feb24 February 05:26

      We are currently talking like there won’t be concessions. This doesn’t just get waves through. That has been made clear by language used by competition authorities. There a chance they get forced to spin off a small airline. That airline then covering the Spanish domestic market.

      • Dev says:
        24 Feb24 February 06:50

        Imagine if you are an Air Europa employee and get spun off into that new small airline! You might as well kiss your career goodbye!

    • Bagoly says:
      24 Feb24 February 09:40

      Is the 73% flights or routes?

  • Pablo says:
    24 Feb24 February 00:26

    Do SUMA miles expire?

  • FearlessTraveller says:
    24 Feb24 February 00:39

    If Air Europa will be managed by Iberia, what will happen with Level? Because Level is the low cost subsidiary of Iberia.

    My theory is that Level will be disbanded, and Air Europa will be further integrated with Iberia

    • G says:
      24 Feb24 February 02:49

      Level is a seperate operation and designed to cut into the long haul budget market. If anything acquiring Air Europa’s routes make more opportunities for Level.

    • Jonathan says:
      24 Feb24 February 08:55

      It half baffles me is to how Level still exists, given how little routes they have…

      • Rob says:
        24 Feb24 February 09:47

        It’s identical to Aer Lingus UK, running selected low(er) cost long haul routes from the 2nd biggest city in the country.

  • marcw says:
    24 Feb24 February 01:51

    The EC will never approve this deal. IAG is also buying Air Europa’s debt (north of €700M). In total, value is above the initial deal (plus remember IAG already paid €75M to Air Europa owners in compensations as the previous deal fell through – it’s gonna happen again I’m afraid)

    • ChrisBCN says:
      24 Feb24 February 08:02

      Except they will, albeit with concessions

      • Rob says:
        24 Feb24 February 08:36

        The genius is, there are no concessions that can be made. There are literally no competitors who can take on routes which had to be divested. The best the EU could do would be to force IAG to create a start up airline with a few planes and crew which would be floated, but it would be deliberately undercapitalised – with no alliance or interlining deals to fall back on – and would fail like Flybe within months.

      • Rob says:
        24 Feb24 February 08:48

        Indeed. TAP next.

        • ChrisBCN says:
          24 Feb24 February 08:52

          Agreed with the point about concessions genius, Rob. Who would you put in the running to buy TAP?

          • DorsetFlyer says:
            24 Feb24 February 09:34

            AF/KLM is rumoured to be circling

          • Rob says:
            24 Feb24 February 09:48

            You can be certain that IAG will buy it, because TAP is presumably cannibalising some Spanish traffic and could potentially take even more. Better to buy it and effectively shut it down, turning it into an Iberia feeder.

          • ChrisBCN says:
            24 Feb24 February 10:27

            I would have thought it would be tough for IAG to buy TAP, the share of Europe>Latin America would be pretty high, although maybe it’s not too high.

          • Rui N. says:
            24 Feb24 February 14:15

            It’s basically IAG at this point or no one. LH wanted it, but they now moved on to ITA. DG COMP might approve one takeover by the LH group, but likely not 2. AF/KLM is rumoured, but a few years ago they wanted to create a Transavia Portugal and the unions stopped it. Not likely that they’d allow a back way to do it now.
            That leaves IAG. IAG is also the preferred solution of O’Leary as he thinks that they’ll be forced to release a lot of slots in LIS by DG COMP, which would suit Ryanair just fine.

      • Marcw says:
        24 Feb24 February 14:06

        So why did the EC not authorize the previous deal? What is different this time?

        • Rob says:
          24 Feb24 February 14:19

          If you persuade them that the airline is essentially bust you can get away with a lot of things – although letting it go bust would release slots etc.

          • marcw says:
            24 Feb24 February 16:10

            That’s what IAG tried last time and failed massively. Air Europa is growing and writing profits. They were profitable before and will be so in the future.
            Air Europa is playing this game to get some free money from IAG. They are not stupid.

  • BajiNahid says:
    24 Feb24 February 03:07

    They should really just retire the Vueling, Air Europa and Level brand and consolidate it all under an ‘Iberia Express’ or call it an ‘Iberia Europa’ brand.

    • TimM says:
      24 Feb24 February 06:38

      From a marketing perspective yes. From an experimental commercial perspective, it is better to ring-fence each operation, should the worst happen to any of them.

      • BA Flyer IHG Stayer says:
        24 Feb24 February 07:29

        Indeed and it’s how IAG operate with each airline running its own operations and IAG providing corporate and cross airline services / products such as cargo, loyalty and plane purchases.

      • Heathrow Flyer says:
        24 Feb24 February 07:56

        From a marketing perspective this would be terrible. Iberia is seen as ‘the King’s airline’ and very Spanish.

        Why do you think the only Iberia route from Barcelona is to Madrid?

      • ChrisBCN says:
        24 Feb24 February 08:04

        Terrible idea from a marketing perspective; there’s a reason why heinz, coca cola all have multiple brands you know….

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