International Airlines Group is moving forward with its planned takeover of Spain’s Air Europa by evaluating deal structures that could pass muster with European regulators.
The group maintains its goal to close the deal by the end of 2023, even as it lacks a clear path to taking over the Spanish airline, Iberia CEO Javier Sanchez said on the sidelines of the ALTA Leaders Forum in Buenos Aires. IAG owns 20 percent of the Spanish airline after converting a €100 million ($98 million) loan to equity in August. The group previously sought to buy Air Europa outright for €500 million but cancelled that transaction last December after regulatory pushback.
“The goal is trying to find a new deal … structure before year end, [and] getting the approval maybe post-summer or in the third quarter or beginning the fourth quarter of the 2023,” Sanchez said. The challenge, however, remains convincing authorities in Brussels that the merger is good for consumers, he added.
IAG claims that a larger airline, with a greater share of the Spanish — and particularly Madrid — market, would be able to grow more, and expand to more destinations than it can without consolidation. For example, Iberia could offer more flights between Madrid and Asia, a region where it historically has flown little, by merging with Air Europa.
“It is also true that we have not being successful in convince the authorities that this, it is good and will be even better in the future for consumers,” Sanchez said.
If the Air Europa deal is approved, IAG would control 37 percent of seats in, to, and from Spain based on fourth quarter numbers, according to Diio by Cirum schedules. The group, which owns Iberia, Iberia Express, and Vueling, currently has a nearly 31 percent share.
IAG’s strength would be even greater in Madrid where it hopes to build a “360-degree hub” to compete with the likes of Amsterdam and Frankfurt. The addition of Air Europa would boost its share of seats in the Spanish capital above 50 percent to nearly two thirds, December quarter numbers from Diio show.
Air France-KLM will have a 60 percent share of seats in Amsterdam, and the Lufthansa Group a 65 percent share in Frankfurt in the fourth quarter, according to Diio.
The IAG-Air Europa deal, despite pre-dating the pandemic, is just one of numerous changes underway among European airlines. EasyJet, Vueling, and Wizz Air have expanded at restricted airports in Lisbon, London, Milan, and Paris, among others, thanks to either restructurings at other carriers or slot divestiture conditions to the state-aid some legacy airlines received. Air France-KLM, along with Delta Air Lines, is the preferred commercial partner in the privatization of Italy’s ITA Airways. And there is talk of both SAS, which is restructuring in U.S. bankruptcy court, and TAP Air Portugal being potential takeover targets.
While IAG works on the Air Europa deal, it continues to see a strong travel rebound even as the economic situation dims in Europe. The group said on October 13 that it saw “no indication of weakness” in the market, and that bookings for the fourth quarter were coming in as expected.
“Demand continues being robust and stable,” Sanchez said for Iberia. He noted that, despite the recessionary forecasts for the eurozone as a whole, on the country level only several economies, including giant Germany, are expected to contract — and not Spain.
Sanchez added that he sees travel demand potentially stabilizing at a new, higher level than before the pandemic. “What we are seeing collectively as industry, meaning tourism or traveling — it is not just pent up demand. I don’t think it’s just pent up demand, there is something more,” he said citing changes in the spending habits of younger generations in favor traveling over, for example, buying a car.
Iberia’s new nonstop flights to Dallas-Fort Worth and Washington Dulles that it launched this past summer have performed as “expected or better,” Sanchez said. Dallas-Fort Worth was extended to year-round service from seasonal in response to demand, but Washington remains seasonal for now. Iberia plans to restart Washington flights in March, and hopes to extend the route to year-round status next year.
In terms of future growth, Iberia plans to add Canada to its map when it takes delivery of the delayed Airbus A321XLR, Sanchez said. The new long-range version of the A321neo is expected to enter service in early 2024, with Iberia due to begin receiving aircraft later that year.