IAG announces plans to acquire Air Europa

Breaking this morning, International Airlines Group (IAG) has announced it will be spending €1 billion on acquiring Air Europa.

Air Europa Airbus A330 at Amsterdam Schiphol – Image, Economy Class and Beyond. 

Under the transaction, Air Europa will fall under Iberia – with IAG making some ambitious plans.

In particular, the aim of the purchase is to transform the Madrid hub into a competitor for Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle, to become a leader in the to Europe to Latin America and Caribbean market.

Air Europa operates 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.

It operates a fleet of 66 aircraft currently, made up of Airbus A330 family (due to switch to Boeing 787-9), Boeing 737-800, Boeing 787-8 and Boeing 787-9.

Under the plans, the Air Europa brand will initially be retained and the company will remain as a standalone profit centre within Iberia. As to how IAG intends to add value, it wants to

• Integrate the Air Europa into the existing Iberia hub structure at Madrid;
• Creating commercial links between Air Europa and other IAG operating companies, in addition to inclusion into IAG’s joint businesses;
• Integrating Air Europa onto the IAG platform of common services.
• Adding reciprocal intra-group codeshares across all connecting gateways
• Adjusting timings to maximise connectivity through the Madrid hub
• Integrating Air Europa into existing IAG joint businesses
• Integrating Air Europa into the Avios currency for loyalty
• Leave SkyTeam (although no mention is made if the airline will rejoin as a oneworld member)

If the transaction fails to gain regulatory clearance, then IAG has will pay Air Europa a break fee of €40 million.

Globila’s other activities are not affected by the sale. The completion of the transaction will be during the 2nd half of 2020 if all goes according to plan

In quotes

Willie Walsh, Chief Executive of IAG, said:

“Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership, therefore generating additional financial value for our shareholders.

IAG has a strong track record of successful acquisitions, most recently with the acquisition of Aer Lingus in 2015 and we are convinced Air Europa presents a strong strategic fit for the group.”

Javier Hidalgo, Chief Executive of Globalia, said:

“For Globalia, the incorporation of Air Europa to IAG implies the strengthening of the company’s present and future that will maintain the path followed by Air Europa in the last years. We are convinced that the incorporation of Air Europa to a group such as IAG, who over all these years has demonstrated its support to the development of airlines within the group and the Madrid hub, will be a success”.

Luis Gallego, Chief Executive of Iberia, said:

“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs. Following this agreement, Madrid will be able to compete with other European hubs on equal terms with a better position on Europe to Latin America routes and the possibility to become a gateway between Asia and Latin America.”

Off to the regulators

This has come pretty much out of nowhere – although, with the changes with LATAM, it’s clear that Iberia is wanting to solidify its market position between Madrid and South America in attempt to solidify Madrid as a super-hub, capable of taking on the others in Europe.

However, this will raise more than a few eyebrows – with IAG operating two of the biggest carriers in Spain (Iberia and Vueling).

How that will go down with both Spanish completion authorities as well as the European Commission will be another matter – with Vueling and Iberia taking over 50% of the Spanish domestic market before this purchase.

This has a long way to go before Air Europa is part of the IAG family…