IAG buys Air Europa amid aviation sector upheaval

British Airways owner IAG agreed Monday to buy Spain’s Air Europa as the global aviation sector charts a path through high-profile failures, fierce competition, economic woes and high fuel prices.

International Airlines Group said in a statement that it has signed an agreement with tourism firm Globalia to acquire Air Europa for 1.0 billion euros ($1.2 billion) to boost its long-haul routes to Latin America and the Caribbean — and also cement Madrid airport’s status as a top aviation player.

Air Europa will complement IAG’s existing Spanish divisions Iberia and Vueling, and help the Spanish capital take on the four largest air hubs in Europe, namely Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle, it added in a statement.

Monday’s deal will further expand a portfolio that also includes Ireland’s Aer Lingus and low-cost European carrier Level, and comes amid a broader consolidation that saw a number of airlines collapse in 2019 in the face of intense competition and high costs.

– ‘Squeezed from all directions’ –

Recent high-profile casualties in Europe include French carriers Aigle Azur and XL Airways, as well as Slovenia’s Adria Airways and Britain’s Thomas Cook, which was both a tour operator and an airline.

Jane Bloomfield, head of business development at Kantar UK, a research firm, said the industry faced multiple challenges that were best faced by established brands.

“Achieving growth today is challenging, particularly in the airline and travel industry, which is being squeezed from all directions,” Bloomfield told AFP.

“Changing consumer needs, behaviour and spending, increased costs of raw materials, environmental/sustainability issues and market disruption are all creating the perfect storm for established, long-standing brands.

“Organisations cannot continue to rely on growth through stealing competitive share or cutting costs.”

IAG’s debt-funded transaction nevertheless seeks to generate significant cost savings, and is set to complete in the second half of next year subject to regulatory approvals.

“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 IAG Chief Executive Willie Walsh on Monday.

“We are convinced Air Europa presents a strong strategic fit for the group.”

London-listed IAG carries about 113 million passengers per year to 268 destinations globally.

Air Europa flies 12 million passengers to 69 destinations around the world, including the Caribbean, Latin America, North Africa and the United States.

“IAG’s move to purchase Air Europa … will open up consumers, markets and routes it does not currently service,” added Bloomfield.

– Ryanair flies through turmoil –

Separately on Monday, Irish no-frills airline Ryanair posted flat first-half profits as it weathered lower ticket prices, weak British demand, intense European competition and a soaring jet fuel bill.

However it was buoyed by low overall costs and rising revenues, while a string of airline failures aided recruitment of new staff.

“Lower fares this year and higher fuel have driven more airline failures, more airline restructurings and more airline sales,” said Ryanair Chief Executive Michael O’Leary.

He added: “We have long predicted that there would be consolidation across Europe into four or five major carriers.

“We have seen the large failures of Thomas Cook, flybmi in the UK, Aigle Azur and XL Airways in France, and Adria Airways in Slovenia.

“All have failed in the last six months. That has seen a significant reduction in capacity, but it’s also freed up a lot of pilots and cabin crew who are now looking for jobs.”

rfj/jh