British Airways Owner IAG Buys Air Europa For €1 Billion

International Airlines Group, otherwise known as IAG, have acquired yet another European airline in a deal reported to be worth €1 billion ($1.12 billion). The owner of British Airways and Iberia has now bought its third Spanish airline, after acquiring Vueling in November 2012.

This means that IAG will now operate a staggering 84% of seats sold domestically in Spain, with the ambitions of the Air Europa transaction to solidify Madrid as an IAG hub along with London Heathrow for British Airways.

The airline group has now expanded to seven brands after also recently acquiring low-cost carrier Level and Aer Lingus in Ireland.

Willie Walsh, who is CEO of the airline group has certainly been known for shrewd deals over the last few years both through acquisitions, disposals and even aircraft purchases. British Airways announced earlier this year that it would acquire up to 200 737-MAX aircraft after the struggling jet was grounded globally. Largely seen as positive press for Boeing who has been embattled with consistently negative headlines over the plane, it is widely expected that IAG got a huge discount on the large aircraft purchase.

It also stirred up Airbus, who have long provided British Airways’ short-haul fleet, yet didn't get a chance to bid on the order–pointing to the fact that the cost per plane of the 737-MAX order would have been well below list prices.

The Air Europa transaction is a little different to previous IAG acquisitions. Rather than gaining an expanded foothold in new markets, the transaction is largely about consolidating one of IAG’s key markets, their Madrid hub, and the lucrative South American routes.

When I spoke to IAG earlier today I was told that this transaction would be funded through external debt. A spokesperson continued to state that “this deal is about Spain and making Madrid a more competitive European hub.”

Asked about whether Air Europa would compete with Iberia’s Latin American routes, IAG responded that there would be “close commercial coordination to increase connectivity.”

Initially, the Air Europa brand will be kept separate and although passengers will be able to claim Avios frequent flyer miles through IAG, it remains to be seen whether passengers will suffer in terms of future price competition with such a dominant position in the Spanish market.

Source: Forbes.com

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