International Airlines Group (IAG) has announced that it is to drop its bid to acquire Air Europa, Spain’s second largest airline.
In an official statement released on August 1, 2024, the airline group alluded to the “regulatory environment” as the main reason for this decision. The European Commission had already expressed serious concerns about the deal, which it feared would seriously restrict competition, leading to higher prices and less options for travelers.
Concerns were particularly acute regarding several key markets in which the combined entity would have a dominant position. These include as several domestic and short haul routes out of Madrid-Barajas (MAD) and air links between Spain to Latin America.
In February 2023, IAG closed an agreement with Spanish travel and tourism group Globalia to acquire the 80% of Air Europa it didn’t yet control. During the pandemic, Iberia, IAG’s Spanish subsidiary, rescued Air Europa from bankruptcy by offering it a loan, which was later converted into shares totaling 20% of the company’s equity.
Shortly after IAG announced its intention to acquire Air Europa, the European competition authorities opened an investigation. It was widely expected that this process would result in the EU Commission imposing a set of stringent conditions in order to approve the deal. Potentially, this included the transfer of a significant number of routes and slots to other carriers.
This in turn prompted moves by other airlines which saw an opportunity to grow their Spanish business. Such was the case, for example, with Barcelona-based regional low-cost carrier Volotea, which expressed an intention to set up a major base at Madrid-Barajas international airport in partnership with Abra Group, the parent company of Avianca.
The partnership between Volotea and Abra Group has been undone after it became known that IAG was no longer pursuing the Air Europa acquisition.
The latter has also invested in Wamos Air, a Spanish charter airline which is active in the Spain to Latin America market, and whose long-haul fleet could come in handy in the event that IAG was required to give up some routes or frequencies in these markets.
As a consequence of dropping its bid, IAG will have to pay €50 million to Air Europa as compensation. IAG has also declared its intention to keep the 20% of Air Europa it already owns, and to focus on the continued development of its Madrid hub.