One of the most controversial merger proposals in the air travel industry came to a melancholy end on Thursday, August 1.
IAG Group, the parent company of British Airways, Iberia and others, announced that it had abandoned plans to acquire Air Europa, citing that the conditions required by the European Commission to approve the merger would not make it viable to pursue the proposal.
The holding company will pay Globalia, owner of Air Europa, US$53.9 million as a fine, but will remain a 20% shareholder in the company, shares that were acquired in 2022.
The merger between the two largest Spanish carriers has raised the alarm among European regulators about their monopoly on routes between Spain and Latin America.
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According to CAPA, Iberia holds 39% of the market between the two regions, followed by Air Europa with 21%, while the two closest competitors, Avianca and LATAM, each have 8% of the market.
In addition, on many routes Iberia or Air Europa are the only operators, such as Madrid-Rio de Janeiro and Barcelona-Santiago.
Pause during Covid-19
The merger proposal was made in October 2019 and the following year IAG withdrew from the deal due to the COVID-19 pandemic. Talks were later resumed, and IAG converted US$100 million in debentures into Air Europa shares.
To convince the merger to be approved, IAG proposed ceding 40% of the routes operated by Air Europa in 2023 to its competitors. It later increased its offer to 52%, but the European Commission demanded that 58% be transferred, a percentage that would make the merger disadvantageous, according to sources close to the negotiations.
As part of the merger proposal, IAG even allowed competitors to apply for slots, instead of the holding company offering them to specific airlines.
The only proposal was from Avianca and Volotea, which announced on June 25 a joint venture to operate flights from Madrid.
Hours after the end of negotiations between IAG and Air Europa, the two companies announced that they would not go ahead with the joint venture.
Mergers in Europe set to continue
After the melancholic end of the merger, the airline consolidation movement in Europe is back on the table. Air Europa does not have the financial strength to compete with IAG, Air France-KLM and Lufthansa in the long-haul market, and with trains and low-cost, low-fare companies within Europe.
IAG CEO Luis Gallego has hinted that the Anglo-Spanish group’s next move would be a South American company.
The privatization of TAP Air Portugal is one of the most potential competitions between the three major European groups for the Portuguese company’s network to Brazil and Africa. Without Air Europa, IAG’s eyes may now turn to TAP.
With the partnership between Air France-KLM and SAS, Lufthansa with ITA Airways and Grupo ABRA (Avianca and Gol) with Wamos, we can expect more moves and twists in the Europe-Latin America market.
