MIAMI — The International Airlines Group (IAG) has unveiled its plans to purchase Spanish airline Air Europa (UX), for the sum of €1 billion.
Pending on regulatory approval, Air Europa would become the third Spanish airline under the IAG umbrella, following Iberia, Vueling, and LEVEL.
The acquisition of Air Europa will further strengthen IAG’s hub at Madrid-Barajas (MAD), currently dominated by Iberia and its biggest competitor, Air Europa.
IAG’s move to purchase SkyTeam member Air Europa comes a few days after Delta announced its investment for a 20% stake in LATAM Airlines, which is set to leave the oneworld alliance and potentially joining SkyTeam in the near future.
Likewise, IAG has also confirmed that Air Europa will leave SkyTeam, should the transaction be approved by regulatory boards.
With oneworld losing LATAM Airlines and its gigantic South American network, IAG might re-gain some access through Air Europa’s modest network to the region.
“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,” said Willie Walsh, Chief Executive (CEO) of the IAG group.
“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,” added Walsh.
However, IAG’s acquisition of Air Europa would practically grant them a monopoly in the Spanish market, translating into a reduced competition and higher overall fares. IAG expects to complete the purchase of Air Europa during the second half of 2020.
IAG argues that consolidation with Air Europa is needed so that MAD can become a true hub.
Air Europa is the third largest airline in Spain, flying to 69 destinations, domestic and international, around Europe, as well as long-haul flights to North America and South America. The airline carried 11.8 million passengers in 2018.
Javier Hidalgo, CEO of Globalia (owners of Air Europa) noted that “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.”
The European Commission will now have to justify IAG’s acquisition proposal given that the deal would be detrimental for fair competition and market prices.
As of November, Air Europa operates a fleet of 65 aircraft, with an average age of 8.9 years.
The airline’s fleet consists of nine ATR72-500s, 11 Airbus A330s, nine A330-200s, and two A330-300s, 20 Boeing 737-800s, 14 787s, eight 787-8s, six 787-9s, and 11 Embraer E190s.
Iberia’s CEO, Luis Gallego, also noted that such a transaction would be “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,” he said.
However, aviation analyst Will Horton claims that MAD might be subject to a high concentration that would risk excessive market power.
Vinay Bhaskara, Airways Senior Business Analyst, explains that this transaction “would dramatically reduce competition across the carrier’s current network.”
“Few if any additional routes will be enabled by the additional bulk of the merged carrier. Instead, it is far more likely that Iberia will draw down much of the Air Europa network (particularly on short-haul flights) and consolidate the Madrid hub,” Bhaskara said.
When combined, IAG will have a whopping 84% market share within Spain, rendering any opponents unable to properly operate and freely compete.