The European Commission is beginning an in-depth investigation to assess the proposed takeover of Air Europa by IAG. In a statement released on Tuesday, the Commission said it was concerned the deal may reduce competition in the markets for passenger air transport services on Spanish domestic routes as well as on international routes to and from Spain.
European Commission raises competition concerns
Earlier this year, it was announced IAG’s subsidiary, Iberia, had agreed to acquire the entire issued share capital of Air Europa in a US$595 million deal. It was half the price offered in 2019, with payment deferred for six years. Now, five months later, the European Commission has said,
“The Commission is concerned that the proposed transaction could significantly reduce competition on 70 origin and destination city pairs within and to/from Spain, on which both airlines offer direct services. On some routes, IAG and Air Europa have been the only two airlines operating.”
Until the travel downturn, Air Europa served 62 destinations, primarily in Europe and South America. IAG, based in Spain and the UK, is the holding company of the Spanish flag carrier Iberia and the Spanish low-cost carrier Vueling. IAG is the third largest airline group in Europe, after Ryanair and Lufthansa
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Existing competitors will not provide strong enough competition against Spanish mega airline
The European Commission can block deals if they think it will result in a less competitive environment. In addition to the city pairs issue, the Commission raised concerns about feeder traffic and the airlines that provide it.
“The Commission is also concerned about the effect of the proposed transaction on routes on which other airlines rely on Air Europa’s domestic and short-haul network for their own operations at the Madrid airport and a number of other EU airports.
“Without Air Europa’s feeder traffic, some airlines may decide to terminate their services to international destinations also served by IAG, reducing choice for travelers.”
The Commission believes competition from other airlines would likely not provide a sufficient check on the proposed Spanish powerhouse airline. The Commission argues there would not put enough competitive pressure on the merged airline. There is the fear prices will rise and services will be reduced.
“We will carefully assess whether the proposed transaction would negatively affect competition on domestic, short-haul and long-haul routes to and from Spain, possibly leading to higher prices and reduced quality for travelers,” says European Commission Executive Vice-President responsible for competition policy, Margrethe Vestager.
IAG has high hopes for this deal
IAG expects the deal to generate significant cost and revenue advantages for them. They say the takeover will increase the importance of IAG’s Madrid hub, unlock further network growth opportunities, and deliver significant customer benefits through providing increased choice and schedule flexibility.
“This transaction makes perfect strategic sense to reinforce Madrid’s hub competitiveness on a global stage. It will benefit consumers, and Air Europa’s incorporation into the Iberia Group will improve the company’s viability benefitting both Iberia and Air Europa employees,” said Javier Sánchez-Prieto, Iberia’s chief executive.
But it appears the European Commission does not necessarily share IAG’s enthusiasm. They began taking an interest in the deal in May. Neither Air Europe nor IAG has submitted data to the Commission in the interim period. There is now a 90 day period for the Commission to make a final decision. The Commission notes opening an investigation does not predicate any final decision.