MIAMI – Since before the COVID-19 pandemic hit aviation last March, it has been no secret that International Airline Group (IAG) had ambitions of increasing its market share to South America.
On Wednesday, January 20, Javier Sánchez-Prieto, Iberia’s CEO, and Javier Hidalgo, Air Europa’s CEO, signed the agreement for Iberia’s (IB) acquisition of Air Europa (UX) for the heavily reduced fee of approximately US$610m (€500m).
What Does This Mean for IAG?
This is a significant acquisition as a whole for IAG. Before the pandemic, European carriers held approximately 75% of the market share on routes between Europe and South America. If approved, it is estimated that IB will hold approximately 25% of the market share between Europe and South America.
The acquisition will allow IB to dominate on key routes such as Buenos Aires and offer new routes to destinations such as Asunción in Paraguay, significantly expanding their network.
IAG´s CEO, Luis Gallego, supported this purchase by saying “Both Iberia and IAG have showed its recovery capacity to face the deepest crisis in aviation history. Being part of a major holding is the best warranty to overcome the challenges of the current market situation and this will also help Air Europa once the purchase is completed”. IB states that the acquisition of UX will help it to recover more quickly from the hit of the pandemic.
Will Past Frustrations Continue to Haunt IAG?
The acquisition is still however subject to regulatory approval from European authorities. Last year, IAG was left frustrated when the Chilean government blocked the joint venture between American and LATAM. This then prompted Delta Air lines (DL) to purchase stakes in LATAM, adding to the frustrations.
As several South American airlines have filed for Chapter 11 bankruptcy, as well as the uncertainty surrounding Air France-KLM (AF-KL), this acquisition is absolutely crucial for IAG.
The purchase of UX will be significant for both IAG and IB. It would enable IB to compete with European aviation giants such as Lufthansa (LH) and AF-KL. The deal would also help to establish Madrid Bajaras Airport (MAD) as a major European hub, alongside Frankfurt (FRA).
Although the deal is still subject to legal challenges from competitors, if approved, IB would have a total of 223 aircraft at its disposal, with a further 79 on order. This would offer IB an unrivaled amount of flexibility in its network to dominate in the South American Trans-Atlantic market.
Featured image: Photo: Fabrizio Spicuglia/Airways