WOW: IAG Acquiring Air Europa, Airline To Leave SkyTeam

Filed Under: Iberia, Other Airlines

Man, huge deals just keep happening in the airline industry.

IAG To Acquire Air Europa

International Airlines Group (IAG) is the parent company of British Airways, Iberia, Aer Lingus, and Vueling. IAG has just announced that they’ve signed an agreement acquire Air Europe for €1 billion.

IAG plans to acquire Air Europa

The plan is for the deal to close in the second half of 2020.

IAG has agreed to pay Air Europa a break fee of €40 million in the event that the transaction fails to receive the necessary regulatory approvals, and either party elects to terminate the transaction agreement.

This is massive news for a variety of reasons:

  • Air Europa would leave the SkyTeam alliance, and would join the oneworld transatlantic joint venture, which includes American, British Airways, Iberia, and Finnair (note that there’s no mention of them actually joining oneworld, but rather just of them joining certain joint ventures)
  • IAG already owns Spain’s two biggest airlines (Iberia and Vueling), and with this deal they’d also own Spain’s third largest airline
  • Air Europa would adopt Avios as their points currency

Vueling already belongs to IAG

How IAG Is Marketing This Takeover

As IAG describes it:

  • This acquisition will turn Madrid into a “true rival” to Europe’s four largest hubs, which otherwise include Amsterdam, Frankfurt, London Heathrow, and Paris Charles De Gaulle
  • This re-establishes IAG as a leader in the Europe to Latin America and Caribbean market
  • This offers significant synergy potential in terms of cost and revenue

As IAG CEO Willie Walsh describes the acquisition:

“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.”

What Happens To The Air Europa Brand?

As IAG describes it, the plan is for the Air Europa brand to initially be retained, and the company will remain a standalone profit center within Iberia, run by Iberia’s CEO.

With that in mind, they’re hoping to unlock value in three ways:

  • Integrating 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

Air Europa’s 787 business class

What About Regulatory Concerns?

IAG really seems to glance over any regulatory concerns with this deal, which I guess isn’t too surprising, since they want to downplay those concerns.

IAG’s argument seems to be that this will be good for Madrid because it will turn Madrid into one of Europe’s super hubs. However, it will do that with virtually no competition, and that’s not great for consumers. It means they can expect higher fares.

I’m not familiar enough with relevant laws to have an informed opinion on the odds of them running into regulatory approval here, though it seems to me like that should be a major concern…

Bottom Line

IAG intends to acquire Air Europa, and essentially plans to make them part of Iberia. Initially they’d be operated as a separate brand, while I guess we’ll see what happens long term. If approved, Air Europa would leave SkyTeam, and would at least join some of IAG’s joint ventures, though wouldn’t necessarily join oneworld as such.

It will be interesting to see if they face any regulatory challenges with this deal. It sounds to me like it would be terrible news for consumers in Spain, as one of two long haul competitors is being eliminated, and IAG will gain even more market share in the country.

I would guess at least part of the motivation here is to build up another European hub for if/when Brexit happens, since there would be an upside to connecting there vs. connecting in London.

What do you make of IAG’s acquisition of Air Europa?

  1. Their confidence in a 40 million euro exit payout would probably mean that they have european regulators in their back pockets.

  2. Spain for IAG will turn into Germany for LH group, yikes. FR might as well be the second domestic carrier now. yet still this cannot compensate for the immense route network LA provides. OneWorld needs something more than this, and I sincerely hope OW go strong.

  3. Ben, an important factor to make this decision by the Air Europa founder and owner, Mr. Hidalgo, who started the company with a bus transportation service, is that his son Javier, who were running also the airline as the CEO prefer to be drinking champagne in night clubs than working hard. And the father knows perfectly that the airline will have no future with him

  4. IAG: we cannot compete on value and service, so let’s just try to get away with as many monopolies and JVs as possible!

  5. IAG has just announced that they’ve signed an agreement acquire Air Europe for €1 billion.

    Quite a few grammatical errors in that sentence!

  6. This has to breach Antitrust regs surely. Surely. More to the point, if this *isn’t* in breach of them, what on earth can be!?

  7. I hope LATAM joins Skyteam (instead of only the Delta-LATAM deal), otherwise this is a big loss for Skyteam in Spain and South America.

  8. I’d be very surprised if this goes through without major concessions, since the whole acquisition will be subject to both Spanish and European antitrust reviews.

    The former may want to focus on Spanish consumer interests, while the latter may look at the Europe-Latin America market as a whole. This merger is problematic on both fronts.

  9. BTW, is Air Europa Express a low-cost airline? IAG already has Iberia Express and Vueling…if Air Europa Express is an lcc, not only will IAG have a larger share of the full service market but also the LCC market as well.

  10. This will be closely examined by anti-trust regulators. I’m guessing Spain will have to decide if it wants to protect consumers or “save” their flag carrier from extra competition in the next economic downturn.

    Unfortunately, I think it will go through. Let’s hope it doesn’t.

  11. So AA needs to rely on IAG to “Tit for Tat” its LATAM failure in a mediocre way ? Sad but so telling… Another “benefit” of alliances I suppose. Those who wrote the original Antitrust laws must be jumping all over their coffins.

    While I appreciate DT’s dismissal of the “Big 3” ‘s whining against the 3 MEs, methink he should go one step further and try to null and void all intercontinental airline JVs, especially AA/BA/IB/AY. This one is not “Dominant” on the market, it’s CORNERING it. Name one alternative…

    Consumer Protection… HA!!!!!!

  12. Huge question mark if the EU regulators will approve this. Remember LH was not allowed to take over tiny Niki.
    Maybe IAG knows sth here….has LH been given approval to buy Condor?

    Not good for consumers at all and i can imagine that there will be route cuts where Air Europa overlaps with Iberia in a big way.

  13. It absolutely sucks for consumers if this deal goes through. From a points and miles perspective, here is what I am looking forward to:
    Air Europe runs Madrid to Recife. This is route just below 4000 miles one way and therefore should be priced by BA for 13k Avios in economy and using IB’s chart, only 34k for business (both on off peak days). The only annoying thing is that Air Europa currently has higher YQ surcharges than IB, so taxes and fees would be around $250 from Madrid to Recife. However, that fact that Brazil doesn’t allow fuel surcharges for departing flights, this would be a new sweet spot from South America to Europe.

  14. Looks like Skyteam and Oneworld members are stealing each others partners this year! Lots of LOLs I say!

  15. I’m a bit dubious about the whole “turn Madrid into a true rival to Europe’s four largest hubs”.

    In order to be a hub like that you need, not just the long haul flights, but plenty of feeder flights in from the secondary cities you are hoping to act as a hub for. LHR, CDG, FRA and AMS work because the main airlines have good feeder services as well.

    But MAD doesn’t really have that – there are good feeders from within Spain and France, but further afield it gets a bit more sketchy.

    In my own case I am equidistant between two regional airports (GLA & EDI) – obvioulsy BA is the main feeder (20 LHR flights day between the 2), but KLM also runs 4 flights a day to each of them. Compare that with Iberia – which has one EDI flight a few days a week during summer only. Yes Easyjet has a daily service, but its one of those annoying flights that’s at a different time each day and doesn’t really connect well with the Latin American services.

    And it’s the same all over northern and eastern Europe, whereas BA, KLM & LH will have maybe 4 or 5 flights a day; Iberia will have one, and even the addition of the Veuling and Air Europa flights doesn’t really change that.

  16. @ Neil
    It’s an interesting point, but I think it’s really tough to compare MAD with, say, AMS or LHR.

    Amsterdam is in a tiny country which needs connecting traffic from other countries if it is to have sufficient passengers to service every market to which KLM flies. It’s been Dutch government policy for decades to encourage the growth of Schipol as a major international connecting hub – part of keeping the Netherlands an attractive centre for business. My local airport, Norwich, has 3 direct flights a day to Schipol, and, er, none to Heathrow.

    LHR is serving a world mega-city whose bread-and-butter is international business, so it doesn’t need so much connecting traffic to feed in (and, in fact, its UK domestic network is pathetically poor – you are sitting in the Scottish central belt which is about the sweet spot, but check out LHR connections from, say, Liverpool or Leeds or Norwich or Plymouth or…).

    MAD, on the other hand, serves a big domestic market and has never put much effort into making itself a European hub (try making a single transfer from T4S to T2, to demonstrate how poorly-connected the MAD terminals are for transferring passengers). Its main claim to route dominance is to the former Spanish colonies in South America (ie, not Brazil, where it’s not particularly well-connected – go to Lisbon for that); occasionally I will transit in MAD, eg, a London-Montevideo trip where there are no direct flights. But generally why would I go to MAD when Schipol and LHR are so much better-connected and easier to transit (even LHR is easier than MAD, unless you’re only transferring within MAD’s T4 block)?

    Still, a ballsy move by IAG. I suspect this one will go through – Spain will want a world-class mega-carrier, the talk of MAD being a hub will be seductive; and the EU might make them share one or two routes but, so far as I’m aware, MAD isn’t even slot-congested, and the EU (and Spain) will be mindful of just how many 2nd-tier European carriers have gone bust recently.

  17. This is American forcing IAG’s hand. What IAG want to do is bide their time so they can make a move on Norwegian but with the disaster that has occurred with LATAM American needed a way into the region and fast. So they turned to Willie Walsh and forced him into doing this deal rather than focusing on getting their hands on the bigger threat that is Norwegian.

    Also Madrid is a bit too far away from much of Europe to make it as appealing as say London or Frankfurt although it might be a possible alternative in some cases.

  18. if they can actually get it past the regulator, more power to them. Between Iberia, LEVEL, Vueling, and now AirEuropa, IAG controls the entire Spanish air sector not named Ryanair.

  19. As a passenger ,I don’t like any of the airlines owned and managed by IAG such as British Airways,Iberia and Vueling.
    Bad food, Loss or delay of checked in Luggage when it s not theft inside our luggage and bad customer service.
    To me IAG is to Europe what American Airlines is to America.

  20. The EU regulators will take a dim view of this and they are certainly not in IAG’s pocket. I have my doubts that anything will ever come of it – just like the IAG take over of Norwegian that was all but done when it was announced.

    Willie Walsh thinks he is entitled to what he wants and is above regulation, he isn’t.

  21. How is this different from Lufthansa, klm, airfrance, etc having dominance on their markets?

    Glad to hear the news, go strong Iberia

  22. After thinking for a while I’ve realised what IAG mean when they say they want to turn Madrid into one of Europe’s major hubs. They aren’t going to turn it into a super connector such as Heathrow or Dubai, airports with connections to everywhere from almost everywhere else. They are going to turn Madrid into a gateway hub. Flights to Latin America will increase as IAG try to turn Madrid into the go to one stop option for flights from Europe to Latin America. It’s a smart strategy to compete against Delta’s new baby, LATAM.

    Also two interesting foot notes have cropped up when I’ve been reading about this
    1) Air Europa is being acquired by Iberia, not IAG which suggests to me that once the deal is complete Air Europa will be folded into the larger Iberia. It’s the logical decision as having Iberia, Vueling, Level and now Air Europa operating in the same market makes no sense.
    2) By using Iberia to acquire Air Europa it suggests to me at least that the British Airways arm of IAG is planning an acquisition of their own. Norwegian anybody?

  23. “You’re don’t wanna be friend with me and you’re stealing my LATAM! You are a mean, bad person! Now, you make my daddy mad too”—British and Iberia, staring Delta AAggressively

  24. Delta’s attack into OW members’ homes finally annoyed the two politically no.1s and the recently alienated sugar daddy of OW. It’s a pretty smart move to block LATAM from OD market in both EU and US. LATAM’s NYC route is more leisure than AA’s South America route so it’s not making a lot of money. Also, on OD market to Spanish originated ppl, AA blocks Delta from MIA(?) and MCO, while IAG and QR block LA&JJ from the starting point of immigrants. UX was long marginal in AF and it’s friends before and it’s route network differs from IB a lot. Will be a very big threat to DL&LAJJ&AF system on intl routes to/from South America. Al Baker must be appreciating his new handful of salt in Doha for now.

  25. I don’t think this will get EU anti-trust approval, if you compare with similar cases (e.g. the already mentioned LH-NIKI case or also some cases in Scandinavia).

    So what is it good for, then? Perhaps driving up the price for a futere takeover by AF/KL/DL?

  26. There’s been speculation that because of the coronavirus pandemic IAG could look to walk away from the Air Europa acquisition.

    Willie Walsh said today “the process for it to acquire Spanish airline Air Europa was ongoing, although the agreement between the pair did contain a price adjustment mechanism. We still have to go through the full competition regulatory approval process. And that is ongoing. So at this point, the process continues.”

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