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The integration of Iberia and Air Europa takes up 62% of the flights between Madrid and Latin America

The resulting company would have, before the transfers to competitors, more than 98% of the operations with Ecuador, Panama, Uruguay, Guatemala, Paraguay and Puerto Rico. The share in Brazil is 75%, and 51% to or from the US

The wedding commitment of Iberia and Air Europa, with the intended purchase of the Globalia airline by IAG, is going through a crucial moment with the negotiation of transfers to the competition of routes and slots (takeoff and landing permits at airports) by the resulting firm. The critical point is in the Atlantic air corridors. This is precisely where the first acquisition attempt in 2021 ran aground. The EU Directorate General for Competition then saw that the merger threatened the disparity in offer to travelers, despite the concessions (remedies) proposed by Iberia on the routes between Madrid-Barajas and various destinations in America.

In view of the total operations to America, to or from the largest airport in the Aena network in 2023, the sum of the two largest Spanish airlines would have had a total share of 58.4% of the traffic (measured in number of flights ). And the percentage climbs to 62.3% taking into account exclusively the routes between Barajas and the international airports of Latin America.

The Minister of Industry and Tourism, Jordi Hereudeclared in an interview with Five days that “having big players is positive because we don’t compete only in Europe, but we do it in the world.” This member of the Government puts compliance with the conditions imposed from Brussels before the creation of the airline giant, and claims to have not perceived an atmosphere between the French and German Executives against the merger in the effort to defend the groups from their countries. , Air France-KLM and Lufthansa, respectively. However, since the agreement between IAG and the Hidalgo family was made, it has always been rumored that both community partners would not make it easy to reinforce Iberia in Barajas.

Two great players

The IAG company operates almost four out of every ten flights between America and Madrid airport (38.6%), while Air Europa, which competes many times on the same routes, has a 19.8% weight. The European Competition Body has on the table the analysis of a market that is currently fragmented, due to the anomaly of two network airlines competing in the same hub, and its evolution, before the imposition of the pertinent remedies, towards a strong dominance by IAG. Iberia operates in this holding company and Air Europa would enter, in principle as independent but coordinated brands.

Iberia and Air Europa planes at Madrid's Barajas airport.
Iberia and Air Europa planes at Madrid’s Barajas airport.SUSANA VERA (Reuters / Contact)

The two eternal rivals took over more than 98% of the flights between Madrid and the capitals of Ecuador, Panama, Uruguay, Guatemala, Paraguay and Puerto Rico in 2023, according to data managed by the companies and the Spanish airport authorities. The joint weight is 75% between Brazil and Madrid, a case in which Latam has reported to the Brazilian Competition Authority (CADE) the risk of market dominance by the Spanish companies that would make it unviable to operate on the Sao Paulo route. -Madrid. And the quota is between 50% and 74% in Costa Rica, Argentina, the Dominican Republic, El Salvador, Peru, Venezuela, Cuba, Bolivia and the United States.

Among the competitors of Iberia and Air Europa there are barely a dozen airlines in all American markets. The aforementioned Latam, the largest airline group in Latin America, has 54% of the flights between Chile and Madrid; 25% of operations between Madrid and Brazil and the same quota in the case of Peru. The Spanish Iberojet, formerly Evelop, is one of the main options in Caribbean destinations such as Costa Rica (26.4% share), the Dominican Republic (8.8%) and Cuba (15.2%). And it also has half of the flights to or from Honduras and almost 6% in Mexico.

Aerolíneas Argentinas stands up for the routes between Argentina and Madrid (26.5% of flights in 2023), in the same way that Avianca, Aeroméxico and Boliviana de Aviación do in their respective national markets, Colombia, Mexico and Bolivia, respectively.

Two other Spanish companies, Plus Ultra and World2Fly, are trying to gain market share from Iberia and Air Europa, and could appear among the remedies that will be proposed to the European Commission to smooth the integration. Plus Ultra has 12.5% ​​of operations with Peru, 36.4% of those that connect with Venezuela and its weight is 5% in flights to Colombia. World2Fly, which was already chosen in 2021 by Iberia in its package of transfers to the competition, closed 2023 with 20% of the trips between Barajas and the Dominican Republic; It takes 20% of the air bridges with Cuba, and manages 5% of the flights going to or coming from Mexico.

Wake up call

The community Competition department that leads Margrethe Vestager underlines that both players in the Spanish air sector are direct competitors and could dominate routes in the domestic market without an alternative in the train and, of course, traffic between the Peninsula and the islands. There would also be a restriction of competition on direct routes to America and to certain countries, such as Israel, Morocco, the United Kingdom and Switzerland, to which Iberia and Air Europa offer direct connections.

In the long-haul business segment, the European Commission (EC) highlights destinations in North and South America, “in which both parties offer direct connection and have competition with few competitors with direct connection.”

Vestager warned on January 24 that “IAG and Air Europa are leading airlines in Spain and key providers of connectivity within the country and between Spain, the rest of Europe and Latin America. With our in-depth investigation we want to ensure that the transaction does not negatively affect the prices or quality of passenger air transport services inside and outside Spain.”

Two senior executives in the airline sector agree that “Iberia’s main problem is finding giants, as the Commission wants, to give them a presence at the Madrid airport.” The two explained to this newspaper that “neither Air France nor Lufthansa make intercontinental flights from Barajas, although they could, because here they lack a network that powers their planes.” From his point of view, the solution for Iberia and Air Europa to lower their dominant positions is in Iberojet, World2Fly, Plus Ultra and in some Latin American airlines, such as Avianca and Latam.

In the north, it is the United States where the European Commission has put its magnifying glass, especially on the Madrid-Miami route. The marriage of Iberia (42.6% share) and Air Europa (8.4%) would leave more than half of the market in the hands of IAG, which also flies to the North American country through the low cost Level from Barcelona. The fact is that the second company with the greatest prominence after Iberia, American Airlines (25.3%), has a shared business agreement with the Spanish company and with British Airways to collaborate on routes between Europe and the United States, something that is very important to it. the EC says. In this case, the great rival that could be strengthened is Delta (10%), a partner of Latam and an ally of Air France.

In the case of the short and medium haul market, different airlines have an appetite for routes that exceed reasonable limits to preserve competition. Among them are Ryanair, Binter or Volotea. The greatest object of desire is the connectivity between the Peninsula and the islands.

Pulse in Europe

Despite its strength in the main transatlantic corridors, IAG defends that the coordinated operation of Iberia and Air Europa would result in a quota in Barajas similar to that of Air France in Paris and lower than that of Lufthansa in Munich or that of KLM in Amsterdam. The group estimates that the merger will boost traffic in Madrid by around 1.6 million travelers per year.

The investigation by the EU Directorate-General for Competition, which began on December 11, entered a second phase in January (in-depth investigation) longer in term and also of greater significance. IAG did not present its expected package of remedies in the first phase of the examination, but among its ranks it is assured that it will not take long to do so. The CEO of the group and designer of the operation, Luis Gallegohas assured that the package of remedies “It will be very ambitious to ensure that they meet the Commission’s requirements.”

The EC identified in 2021, in a first supervision of this integration, up to 70 routes in which the sum of Iberia and Air Europa had to lower its share for the benefit of other companies. The authorities requested transfers between Madrid and Miami, Montevideo, Panama, Santo Domingo, Havana, Quito, Lima, Buenos Aires, Sao Paulo or Medellín, which was an unaffordable condition for Iberia at the time.

IAG, which has kept this growth project alive in Spain since October 2019, hopes to close the acquisition throughout this year. The first offer, more than four years ago, amounted to 1,000 million. That attempt prior to the pandemic collided with the aforementioned demand for remedies, which led to the plan being frozen in December 2021. Failure to complete the purchase cost IAG 40 million due to the breach of the contract. And he paid another 35 million so that Globalia would give up reporting and open up to speaking again.

Once contacts were reestablished, the price dropped to 500 million plus a debt that exceeded 600 million. In a first step, IAG took over 20% of Air Europa for 100 million on February 23, 2023, and agreed to pay the rest, if the green light was obtained in Competition, in cash and shares.

Argument in thousands of documents

Bodyguard. IAG moves in Brussels with the advice of Morgan Stanley, Garrigues and Slaughter and May. Contacts with competition authorities date back to April last year. Before the presentation of the final report (filing), Iberia sent up to 300,000 documents in the pre-notification process.

Defending. The buyer speaks of benefits for Spain’s connectivity, with the opening of routes to the East and Asia by avoiding overlaps with Air Europa. She also states that there will be benefits for consumers from the increase in destinations and frequencies. IAG expects to offer more than half a thousand new origin and destination combinations.

Impact. In the argument sent to the EC, IAG estimates that 1,800 direct jobs will be generated, an increase in Barajas’ annual income of 30 million, and an increase in cargo traffic by 16,000 tons.

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