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.
At the moment, acquisition talk in Europe is largely centered around Air Europa and TAP Air Portugal, two long haul carriers that don’t belong to any of the major long haul joint ventures. Along those lines, there’s an interesting update regarding Air Europa’s future, and it’s not necessarily what most people would have expected…
In this post:
Turkish Airlines plans 27% stake in Air Europa
In recent times, we’ve heard reports of Air France-KLM and Lufthansa Group considering an investment in Madrid-based SkyTeam carrier Air Europa. Those offers have reportedly now been withdrawn, but another party is interested.
Turkish Airlines has announced that it intends to submit a binding offer to acquire a minority stake in Air Europa. Specifically, the global airline giant intends to acquire a 27% stake in Spain’s second largest long haul airline. This investment would come in the form of a loan that will covert into equity. Air Europa’s goal is to clear all of its debt with the government, including early repayment of a €475 million loan granted during the pandemic.
In a filing, Turkish Airlines explains the rationale for this investment:
Following feasibility studies, the investment has been evaluated as being in line with our Company’s long-term value generation objectives under its 2033 strategy, based on the following:
i. The complementary nature of Turkish Airlines’ global network and Air Europa’s strong presence in the Iberian Peninsula and Latin America across both passenger and cargo segments, enabling scaled and accelerated growth in the Latin American market; and
ii. The potential to create a leverage effect for our aviation ecosystem — including subsidiaries and JVs — through new revenue streams and increased regional operational diversity.
We’ll see what comes of this, but it seems that both parties are happy with the idea behind this offer. Of course government approval is still required, though for a minority stake, that shouldn’t prove to be a major issue.
The backstory on Air Europa’s current ownership structure 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 is a fascinating, unconventional investment
Generally airline consolidation in Europe is very focused on the western part of the continent, with the “big three” airlines just trying to swallow up smaller airlines, and add them to their long haul joint ventures. So in that sense, I’d say that Turkish Airlines investing in Air Europa would be great for consumers:
- Air Europa would continue to be an independent player, since Turkish Airlines can never acquire a majority stake in an airline from the European Union
- Air Europa would continue to compete with the “big three” joint ventures, rather than simply joining one of them
- Turkish Airlines has a massive route network and a ton of global connectivity, so this would help the airline strengthen that even further, including in geographies where the airline is relatively weak
I see the strategic rationale behind this deal… sort of. As mentioned in Turkish Airlines’ own filing, the goal would be to tap into Air Europa’s strong presence on the Iberian Peninsula and in Latin America. If a deal were to happen, presumably we’d see Air Europa increase its service in Istanbul (IST), and Turkish Airlines increase its service in Madrid (MAD), to facilitate connections.
Turkish Airlines currently flies to more countries than any airline in the world, so the carrier has an incredible network. However, if there were more plans to offer combined Turkish Airlines and Air Europa itineraries beyond Madrid and Istanbul, we’d be looking at two stop service, rather than one stop service.
The other thing to keep in mind is that Turkish Airlines wouldn’t have a majority stake in Air Europa, so its power would be limited. IAG would have almost as much of a stake in the carrier as Turkish Airlines, so I think there are limits to the extent to which Turkish Airlines could push the agenda at Air Europa.
I’m sure many people wonder what alliance Air Europa would belong to if this deal happens. Air Europa is currently in SkyTeam, but would have investments from Star Alliance and oneworld airlines. I think it’s unlikely that Star Alliance would welcome Air Europa, since the airline competes with the Star Alliance transatlantic joint venture. So I don’t know what this would look like, but I think it would reflect the decreasing importance of global alliances.
Bottom line
There has been a lot of talk of Air Europa getting an investment from another airline. Air France-KLM and Lufthansa Group have withdrawn their offers, and now Turkish Airlines seems to be the frontrunner, with the plan being to acquire a 27% stake in the Spanish carrier.
I’d say Turkish Airlines investing in Air Europa would generally be good for competition in Europe. It would mean that Air Europa would continue to compete with the existing long haul joint ventures, while offering enhanced connectivity in cooperation with Turkish Airlines’ network.
Then again, most of the routing synergies would be for itineraries involving at least two connections, since presumably passengers would have to route through both Istanbul and Madrid.
What do you make of the possibility of Turkish Airlines investing in Air Europa?
Air Europe is spanish but not Madrid-based. Headquarter is Palma de Mallorca.
It's main hub is in Madrid, so its considered a Madrid-based carrier. Palma and Tenerife are focus stations. To be fair, he did not say HQ'd in Madrid (unless I missed it).
As mentioned, hope this does not mean another airline is leaving Sky team
I can't see much potential in the networking effect as these would all require two transfers = won't be too attractive for most pax. It will basically only make sense for trips between two secondary cities but that's not a lot of business.
Yes and no. MAD and IST are both huge markets, even just feeding each other can add a significant amount of value. There aren't too many options for travelling between Central America and Eastern Europe, so the two-stop traffic can also fill seats and support routes [even if the yields aren't great]. This isn't going to transform global aviation overnight, but it can generate profits and synergies for both airlines.
Great idea. This will make it poissible for Turkish to offer routings to smaller cities in LatAm like Asunción, Cordoba, Quito, and San Pedro Sula.
Given that UX flies no further east than TLV, I can see why UX might want to partner with an airline that gives it a global reach. TK’s global network plus UX’s Latin American stronghold looks like a good partnership to me.
There are quite a few transatlantic-only airlines — FI, EI, TP, also IB (except the NRT route) — which would do well to have a strong partnership with airlines that have a larger...
Given that UX flies no further east than TLV, I can see why UX might want to partner with an airline that gives it a global reach. TK’s global network plus UX’s Latin American stronghold looks like a good partnership to me.
There are quite a few transatlantic-only airlines — FI, EI, TP, also IB (except the NRT route) — which would do well to have a strong partnership with airlines that have a larger Asian and African network. IB serves NRT and partners with JAL, and more recently FI announced a partnership with TK as well, in addition to WN. I wouldn’t be surprised if TP did something similar, given its Star membership.
The owners of UX basically want to cash out. The Hidalgos are very astute businesspeople who managed to build a bit of an empire out of nowhere and turned what essentially was a charter airline into a serious player in demanding scheduled markets. The latter, however, aren't quite their area of expertise.
The pandemic prevented them from selling out to Iberia, and now they're faced with an opportunity to make the company even more important...
The owners of UX basically want to cash out. The Hidalgos are very astute businesspeople who managed to build a bit of an empire out of nowhere and turned what essentially was a charter airline into a serious player in demanding scheduled markets. The latter, however, aren't quite their area of expertise.
The pandemic prevented them from selling out to Iberia, and now they're faced with an opportunity to make the company even more important on a global stage. My hunch is that, if the TK investment goes well (and I am optimistic that it will), we'll be seeing an IPO in a few years' time.
I should have added that I will be among the first signing up for such an IPO, not because I think it'll necessarily be a great investment, but for symbolic reasons because I appreciate the role of Air Europa as a dark horse in European aviation.
If Air Europa ends up joining Star Alliance, then the chances of Air France-KLM acquiring TAP could be very high.
We're talking two separate processes, there's absolutely no guarantee of AFKL both outbidding other interested parties and agreeing terms with the Portuguese government.
Personally I am secretly hoping LOT can find a way, maybe together with a non-airline investment partner, to form a fourth European airline group with TAP and maybe someone else.
LO+TP+A3 would be a dream combo :)
YES!
LOT and Alitalia/ITA would be great.
If lufthansa lets go of ITA and they merge with LOT, they could build on a Milan-Warsaw dual hub and become basically the 2nd Air France-KLM.
Looking at the Air Europa routemap in Europe, to what extent do they confuse underlying demand with current passenger traffic patterns?
Why fly to Frankfurt and Munich, which are the main hubs of the competing Lufthansa, rather than Dusseldorf/Hamburg/Berlin?
Munich is the capital of an extremely rich region, the high-end shopping offerings are world class. Frankfurt is the financial capital of Europe and seat of the ECB. Düsseldorf, together with literally thousands of other stations in Germany, is covered by their Rail and Fly agreement with DB which means passengers can buy a through ticket from their local station.
It's not just the transatlantic JV at Star Alliance, TAP is a huge competitor of UX's for traffic to/from Brazil [and a few other destinations in the Americas] or regional airports in Spain. Of course, that might change if TAP gets taken over by AFKL.
I'm genuinely excited by the news as I don't think that making the big 3 any bigger is in anyone's interest (never mind the reduction in competition, the sheer size...
It's not just the transatlantic JV at Star Alliance, TAP is a huge competitor of UX's for traffic to/from Brazil [and a few other destinations in the Americas] or regional airports in Spain. Of course, that might change if TAP gets taken over by AFKL.
I'm genuinely excited by the news as I don't think that making the big 3 any bigger is in anyone's interest (never mind the reduction in competition, the sheer size and massive complexity of the Lufthansa Group even gets in the way of its own strategy!).