Global aviation in Europe is very much controlled by the “big three” European airline groups — Air France-KLM, IAG, and Lufthansa Group. These airline groups often try to buy up independent airlines, both to further their strategic interests, and to prevent competitors from doing the same.
Recently, we’ve seen Air France-KLM acquire a stake in Scandinavian Airlines, and we’ve also seen Lufthansa Group acquire a stake in ITA Airways and in airBaltic. We know that there’s appetite for more deals in the region, and we’ve just learned the details of the latest offer that has been made.
In this post:
Air France-KLM eyes 51% stake in Air Europa
In November 2024, there were reports that Air France-KLM was pursuing an investment in SkyTeam partner Air Europa. At the time, this interest was even confirmed by Air Europa parent company Globalia, but the company noted that “there is an interest, but there is also interest from other airlines and funds,” and that “nothing is sealed.”
There’s now a significant update, as El Confidencial reports that Air France-KLM has made an offer to acquire a 51% stake in the airline. Air France-KLM has reportedly offered €300 million for the stake, in addition to taking over €475 million of debt that Air Europa owes to the Spanish government.
A 51% stake would require approval from European Union regulators, and that could be a time consuming process that also requires some concessions. When this was first being floated several months back, the belief was that Air France-KLM was looking at a smaller, minority stake.
Now, it’s worth noting that Lufthansa Group is also reportedly interested in acquiring a stake in Air Europa, and is believed to be offering €240 million for a 25% stake in the airline. Any investment in the Madrid-based SkyTeam carrier would be about increased commercial cooperation between airlines.
The backstory here is interesting. In 2019, IAG (the parent company of British Airways, Iberia, etc.) intended to acquire Air Europa. This would’ve been a major shakeup for aviation in Spain, and for the general dynamics in the industry, given that we would’ve seen the same company controlling Spain’s two biggest long haul airlines.
That deal never ended up happening as intended. First there was a major delay due to the pandemic, and then regulators ended up blocking the deal, due to concerns over lack of competition. IAG did manage to acquire a 20% stake in Air Europa, though there’s not closer cooperation between Iberia and Air Europa.
Air Europa is actually doing pretty well financially. In 2023, the company reported a profit of €165 million, and in 2024, the company reported a profit of €205 million. For what it’s worth, IAG purchased its 20% stake in Air Europa for roughly €100 million, though that was at a time where the airline wasn’t doing as well.
This closer cooperation makes a lot of sense
I can totally see why Air France-KLM is interested in investing in Air Europa, and how it would be a win-win for the Franco-Dutch airline group and the Spanish carrier:
- Air Europa is already in SkyTeam, so it would be easy enough for the two companies to work more closely together, as a lot of those systems are already in place
- The biggest potential benefit here is Air France-KLM being able to extend its network to Central and South America, given Air Europa’s extensive network to Latin America
- I’m not sure if Air France-KLM would try to get Air Europa into the transatlantic joint venture with Delta and Virgin Atlantic, but presumably that could be on the table as well
- Air France-KLM has already acquired a stake in Scandinavian Airlines, so the airline group would really have some strategic geography advantages if this deal happened
Would this be good for consumers? Well, if consolidation were to happen, I do think that Air France-KLM would be a better fit for Air Europa than any other airline group. In this case, there are two ways to look at consolidation from the perspective of consumers:
- On the one hand, it’s unlikely that Air Europa would have the consistently attractive fares it currently has, since it’s an independent carrier and needs to compete on price; in particular, Air Europa has among the lowest business class fares
- On the other hand, there’s merit to one of the major airline groups being able to better compete, as that should improve competition against IAG, which is the parent company of Iberia
While Lufthansa Group is also interested in an Air Europa investment, the airline group is also reportedly looking at a stake in TAP Air Portugal. There’s obviously similar merit to that deal, as Portugal has great geography across the Atlantic, particularly for South America, and TAP also has a low cost structure.
Bottom line
We’ve known for some time that Air France-KLM has been looking to invest in Air Europa. The airline group has now reportedly made an offer to acquire a 51% stake. The goal would obviously be closer cooperation between airlines, and the ability to strengthen the airline group’s position in Latin America. For that matter, it’s also about preventing the competition from making a deal. Between this and the Scandinavian Airlines investment, Air France-KLM could potentially have much better geographic coverage in Europe.
There’s competition for this deal, though, as Lufthansa is also interested. I still think it’s more likely that Air France-KLM gets Air Europa, and Lufthansa Group gets TAP Air Portugal.
What do you make of the possibility of Air France-KLM acquiring a stake in Air Europa?
Looking at the pricing, The LH deal values Air Europa higher than AF-KLM does - i mean €240m for 25% is better than €300m for 51%. While Tap is very attractive, it is very dominant in Brazil but it covers less of Latin America in general than Air Europa does.
Also, Air Europa is leasing a plane to Brussels Airline apparently as a test for the Lufthansa group to see how it operates.
UX to AFKL, TP to LHG and IB to IAG is the best case for Europe competition watchdogs: all 3 alliances would have a decently placed Central and South America gateway.
It seems LHG would be the largest beneficiary considering they have nothing west of FRA currently.
Anyone has clues whether it's better to share MAD with IB or having to expand from LIS ? Portugal has massive diaspora in Europe so the network...
UX to AFKL, TP to LHG and IB to IAG is the best case for Europe competition watchdogs: all 3 alliances would have a decently placed Central and South America gateway.
It seems LHG would be the largest beneficiary considering they have nothing west of FRA currently.
Anyone has clues whether it's better to share MAD with IB or having to expand from LIS ? Portugal has massive diaspora in Europe so the network is massive but yields are probably poor with massive LCC there. I wonder how much space is left for long haul expansion ? Seems the runway situation is not great.
What do you do with SAS? You dominate Scandinavia.
SAS already dominates the Norway, Denmark and Sweden, but that's a small market. SAS and KLM are both low-end airlines. SAS so much so that they don't have intra-Europe business-class for connecting long-haul passengers. That is supposed to launch this summer. But it's long overdue.
I fly UX between Europe and South America one to three round trips per year. I used to be an Iberia loyalist but Air Europa offers significantly better value. Decent business class for about 30% less. Given that I used to be a flying blue platinum member I wouldn’t mind a partnership that haves me flying AF or KL occasionally, I just want UX to stay competitive with their prices.
Now that ITA, Scandinavian, TAP, Air Europa and Air Baltic are being absorbed there’s only Finnair, LOT, Aegean, Icelandair and Condor left as independent airlines other than the very minor players and LCCs.
It is also possible IAG could go after TP but I do think AF KL will win for Air Europa.
Amsterdam Paris Copenhagen and Madrid would be quite a wall across western continental Europe supplemented by London
I just don't see what the play is. Where do you position Air Europa? KLM is a mess. Even in business-class. SAS doesn't (yet) have intra-Europe business-class. I guess you could make Air Europa a no-frills, cheap transatlantic airline like TAP Air Portugal. Take advantage of KLM's extensive UK service to give British Airways a run for the money. Make Air France the premium airline. But then what do you do with SAS?
Air Europa is crummy airline that uses a terrible terminal in Madrid.
I think they use all three main terminals, which are uninspiring but efficient and easy to navigate...and certainly better than having to take the train to T4S.
The T123 terminal(s) will be refurbished by 2030, and a new central building will be constructed for check-in, passport controls, and baggage collection. This has already been published, and work will probably begin next year.
Between UX & TP, I expect AFKL gets one and LH gets the other. Home team advantage to the same alliances, but a swap is also possible.
Getting the TA JV will be a skosh harder b/c of scope - the Euro airlines will want to exclude flights to destinations South of the Rio Grande, where the US counterparts will insist they be included.
News articles have also indicated that AF/KLM is interested in acquiring part of TAP.
https://businesstravelerusa.com/news/air-france-klm-ceo-confirms-interest-to-acquire-tap-air-portugal/
https://simpleflying.com/confirmed-air-france-klm-bid-tap-air-portugal/
You haven't explained why you think this will be better for consumers. UX are currently selling business class tickets Germany to Ecuador for €1700 return all in. Do you think that AF will be inclined to offer prices that are lower or higher than that?
Obviously, less competition would result in higher fares. Although fares to Ecuador seem to be the lowest, to other countries in Latin America they already charge higher fares, now.
They do seem to have an old-fashioned approach to revenue management, at least if you exclude online upgrades.
I know they work with tour operators to send people to the Dominican Republic etc and for South America I imagine they just try to get the most out of Y flyers on VFR trips and leave the big seats available for those on corporate contracts (they're the most convenient choice for a lot of people...
They do seem to have an old-fashioned approach to revenue management, at least if you exclude online upgrades.
I know they work with tour operators to send people to the Dominican Republic etc and for South America I imagine they just try to get the most out of Y flyers on VFR trips and leave the big seats available for those on corporate contracts (they're the most convenient choice for a lot of people travelling to/from places such as Paraguay, Cordoba etc), using any slack for opups, paid online upgrades, award tickets etc.