Iberia will increase its revenue from passenger traffic by 50% and its IAG matrix will do so by 10%
International Airlines Group (IAG) announced on Monday the agreement with Globalia for the purchase of 100% of the capital of Air Europa, through Iberia, an operation valued at around 1,000 million euros, which will involve a turnaround to the air business in Spain and in Latin America.
In Spain, Iberia will take full control of the large ‘hub’ of the Madrid-Barajas airport. And in Latin America, it will strengthen its leadership in connections with Europe, thanks to the airline of the Globalia group that had undertaken an ambitious expansion plan there.
Thus, the agreement will allow the IAG ‘hub’ in Madrid to become a true rival for the four largest ‘hubs’ in Europe: Amsterdam, Frankfurt, London Heathrow and Paris Charles De Gaulle.
«This operation is of great strategic importance for the ‘hub’ of Madrid which, in recent years, had lagged behind other European ‘hubs. After this agreement, Madrid will be able to compete with other European’ hubs’ on equal terms. of conditions, with a better position on the routes from Europe to Latin America and the possibility of becoming a gateway between Asia and Latin America, «said Luis Gallego, CEO of Iberia.
In the event that this agreement is authorized, the great rival of Iberia, which will maintain its brand, becomes the sixth airline of the group also composed of British Airways, Vueling, Aer Lingus and Level. Iberia would do so with the airline of one of its great European rivals Globalia (family business group that also controls Halcon Viajes, Travelplan, BeLive Hotel).
The purchase operation is expected to be completed in the second half of 2020. With absorption, Iberia will be able to shoot 50% of its revenue from passenger traffic and its IAG matrix will do so by 10%, and also assumes the fleet of 66 Air Europa has airplanes.
The Air Europa brand will initially be retained and the company will continue to be an autonomous revenue center within Iberia led by Iberia’s CEO, Luis Gallego.
In 2018, Globalia achieved consolidated revenues of 3,850 million euros, compared to 3,689 million in 2017, of which 52% were contributed by Air Europa. The airline, the engine of the group, increased its turnover by 9.3% and for the first time exceeded the 11 million passenger barrier.
12 MILLION MORE PASSENGERS
The Globalia company operates 69 national and international routes (many overlap with those of Iberia) with 11.8 million passengers and last year generated revenues of 2,100 million euros and an operating profit of 100 million euros. Air Europa made a net profit of 67 million in 2018 and its assets totaled 901 million.
The airline of the Hidalgo family company was immersed in an expansion plan of its fleet that expected to reach 70 aircraft in 2025: 8 B787-8 aircraft, 21 B787-9 aircraft, 9 B737-800 aircraft, another 25 of the model B737 MAX and seven ATR 72.
By 2024, IAG expects the absorption of Air Europa to contribute 12 million more passengers, of which 2.5 million are long-haul, with 10 more transatlantic destinations and 37 additional aircraft. With this purchase, IAG controls four of the first six airlines by number of passengers on domestic flights in our country (Vueling, Air Europa, Iberia and Iberia Express).
The Acquisition is expected to generate cost synergies through sales, general and administrative expenses, supplies, handling and distribution costs with full-service synergies that must be achieved by 2025. IAG expects that the cost implementation will be developed in the same period.
In addition, it is expected to generate significant revenue synergies in 2025, including: adding reciprocal shared codes within the group on all connected gateways; time adjustment to maximize connectivity through the ‘hub’ of Madrid; align trade policies and integrate sales teams in national markets; integration of Air Europa into existing IAG joint ventures; and integration of Air Europa in the Avios loyalty program.
The acquisition is expected to generate profits in the first full year after closing and increase profitability on the invested capital of IAG in the four years following the close.
The operation occurs in a complicated context for the air sector, marked by the price war in Europe with the arrival of low cost, the increase in the price of oil, Brexit and the veto to the Boeing 737 MAX.