Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The head of British Airways’ owner International Airlines Group has warned European competition rules make bidding for easyJet “very difficult”, as he called for an overhaul of the way Brussels viewed airline deals.
EasyJet’s future has been thrown into uncertainty after US private credit group Castlelake last month said it was considering a possible bid for the budget airline.
“It’s something that we can explore but with the current competition regulation I see it as very, very difficult,” IAG chief executive Luis Gallego told the FT of a potential offer for the low-cost carrier.
“We are open to everything, not only easyJet,” Gallego said. “We understand that aviation must consolidate in order to be more efficient . . . I think we can explore everything that we consider [can make us] a stronger group.” The company regularly talks to other airlines about consolidation opportunities, he added.
The European industry has had deals for its smaller carriers in recent years, but “if the regulation changes, maybe we can have the opportunity for bigger movements in Europe”, Gallego added.
Any Castlelake offer is likely to feature partners, including potentially a European airline, in order to comply with local ownership rules. However, any deal featuring IAG or Air France-KLM would involve significant overlap that would run into antitrust issues. Castlelake has until June 26 to table a formal bid for the airline.
Gallego refused to comment on Castlelake — although people with knowledge of the discussions say the airline is not in talks with the US group.
Instead, he stressed Europe needs to fundamentally change the way it evaluates airline mergers.
“They need to understand that we need scale,” he said. “In Europe, if we want to compete, if we want to have a scale to compete in the world, I think, we need more consolidation.”
The company walked away from its bid to buy the 80 per cent of Spanish airline Air Europa it does not already own in 2024 after the European Commission flagged competition concerns about the deal.
“We couldn’t do it because of the remedies that the European Commission asked for, and then we abandoned the operation,” Gallego said. “That doesn’t mean that we don’t think that it’s good for the customers” and to grow the power of Madrid as a hub airport. It still holds a financial stake in the airline.
He said regulators must look at transfer traffic at airports and the competition between hub airports, rather than simply point-to-point air traffic that accounts for only a third of the movements from large hubs.
“We did the analysis and we were going to have more origins and destinations” with Air Europa, he said. Although the Spanish carrier was “a good operation”, “we can continue without Air Europa”, he added.
IAG was formed in 2011 by the merger of British Airways and Iberia with a stated aim of being a consolidator of European carriers. It also owns Aer Lingus and Vueling.
Earlier this year IAG walked away from the chance to buy a stake in Portugal’s TAP airline, after the government failed to offer assurances it could eventually take control of the business.
Smaller airlines across Europe “need to belong to one bigger group” to survive, he said.
But Gallego ruled out any transformative deals outside of the region — such as a potential tie-up with American Airlines, which works closely with BA on the north Atlantic route, but is lagging behind rivals Delta Air Lines and United Airlines.
“With the current joint venture, we have all the advantages that we can have and we have the antitrust immunity and we can work together, so I don’t see why we need a model with more integration,” Gallego said.
American was “growing now, they are investing in the product, and I think they’re going to recover from this situation . . . we are not considering other scenarios”.
Credit: Source link
