LONDON — International Airlines Group (IAG) have been a rapidly growing airline group that has evolved over the past seven years.
The group represents a huge section of the airline industry across Europe and the rest of the world, which has had a significant effect on the way customers fly.
IAG topped over 100 million passengers carried in 2016, which in size comparison, is very comparable to that of Ryanair, which carried over the same number annually.
How it all started
Starting out in January 2011, the group launched out as a merger between British Airways and Iberia—something that Willie Walsh had a lot to do with when he was CEO of British Airways up to 2010, two years after the merger had happened.
In the seven years that the group has been running, they have acquired BMI—which then became absorbed into British Airways, followed by Vueling and Aer Lingus.
Having these airlines grouped means that IAG has a diverse portfolio of carriers that operate in different markets and are a mix of full service and value carriers.
IAG believes that the airlines are stronger as part of the Group than they would be as individual carriers and they can work together to maximise revenues and generate costs savings.
When Airways questioned IAG about their ability to thrive in the industry, they said that their centralized back offices take care of activities such as IT, procurement, and financial transactions group level.
This small parent company—which can be separate from the day-to-day airline management—is flexible enough and fast moving, evidenced by how quickly LEVEL (the group’s newest long-haul low-cost carrier) was set up, and how fast they are growing.
IAG aims to be the world’s leading airline group; they told Airways. But IAG will only acquire carriers that add value to them.
The conglomerate believes that they have created a structure that can deliver long-term, sustainable financial results. To do that, they must balance long-term returns with short-term profitability, invest wisely in areas that generate good returns, and reinforce their brands while always remaining both flexible and disciplined in their approach.
NIKI: IAG’s New Project
On top of the IAG group growing into the ULCC market with LEVEL, they are branching out further after announcing on December 29, 2017, that they were to acquire some of Austrian’s NIKI’s assets.
These assets were sold for €20 million and provided liquidity to NIKI for up to €16.5 million, which would support 740 jobs to run the operation, thus making IAG far larger.
The assets include up to 15 Airbus A320 family aircraft and an increase in slot portfolios to airports such as Vienna, Dusseldorf, Munich, Palma de Mallorca, and Zurich.
The aircraft will be operating under a newly formed subsidiary of Vueling, which will be incorporated as an Austrian company, similarly to how easyJet have recently been re-registering aircraft into Austria. The deal is to be still approved by the European Commission on the basis of competition.
Willie Walsh, IAG CEO said, “NIKI was the most financially viable part of Air Berlin, and its focus on leisure travel means it’s a great fit with Vueling.”
“This deal will enable Vueling to increase its presence in Austria, Germany, and Switzerland, and provide the region’s consumers with more choice of low-cost air travel,” he said.
As NIKI will be transferred along to Vueling, it shows that IAG is expanding their low-cost portfolio in a way to align themselves with competitors such as Ryanair, Norwegian, easyJet, among others, who as of late, have become prominent hitters.
When asked about their approaches to combatting their other carriers, they claim that “the European airline market is highly competitive for all our carriers. Within the mix, Aer Lingus, Vueling, and Iberia Express are our low cost/value carriers but Iberia and British Airways, as full-service carriers, are also focused on competing effectively in all markets.”
“LEVEL was set up in Barcelona last year with great success and will be starting operations from Paris Orly in July 2018,” they said.
IAG is now fit and ready to compete well alongside Norwegian, Ryanair, and easyJet. However, carriers such as the Lufthansa Group are also expanding their portfolio; it could prove challenging potentially.
The Lufthansa Group – Are they a threat?
It could be argued that the Lufthansa Group could be IAG’s biggest European competitor, as their conglomerate has several numbers of carriers that dominate the market share across Europe.
Owning carriers such as SWISS and Brussels Airlines, puts the Lufthansa Group at a relative advantage, being able to produce higher revenues with a more diversified portfolio.
For IAG to acquire NIKI would be a blow for Lufthansa as they were trying to buy those areas of assets as well.
However, but the European Commission blocked them, claiming it would have been unfair to the arena in the German and European markets.
It will be more than likely that the EC is going to approve IAG’s bid on NIKI due to how little assets IAG would be acquiring as such.
As IAG’s reach extends into Austria, the worrying thing for the Lufthansa Group would be how this new subsidiary will do against Austrian Airlines and whether the group will suffer as a result of this.
Moreover, easyJet re-registering aircraft in Austria could be a blow for the Lufthansa Group as flyers will not pay premium prices and could, in turn, force Lufthansa Group to drive their prices down in Austria.
This would ultimately highlight the fact that the Lufthansa Group will not become much of a threat for IAG as their centralization will bring prices down for the flyer.
Overall, IAG has become an airline group that is positioning themselves nicely into both the premium price market and also the low-cost market.
A great balance of the two should create quite a significant return for the group and should see them dominate on a global scale over the next ten years that they continue to operate without any significant threats.