What's going on?
IAG – owner of British Airways, Iberia, and Vueling – took another company under its wing on Monday: the airline conglomerate announced it’s buying Air Europa for a lofty $1.1 billion.
What does this mean?
Following the purchase, IAG will own Spain’s three biggest airlines. That’ll help it turn the airport in Madrid into an international hub that could rival Amsterdam Schiphol and London Heathrow. And with IAG’s dominance of Heathrow under threat from Virgin, a new fiefdom could be just the ticket.
By buying Air Europa, IAG will also control around a quarter of the routes between Europe and Latin America. That’ll give it a flightpath round Delta, which recently bought a 20% stake in carrier Latam for almost $2 billion and plans to remove the airline’s flights from IAG’s websites and loyalty schemes. IAG will be hoping Air Europa – whose flights will now be wiped from Delta’s systems – makes up for that loss.
Why should I care?
The bigger picture: Ryan-scare.
IAG’s future mightn’t be entirely in its control, since airlines’ fortunes are subject to lots of external factors. Ryanair, for example, announced on Monday that it’d receive fewer new planes than it’d hoped from Boeing, which is still trying to get production back on track after halting it altogether earlier this year. That’s bad news for the Irish airline, which wants the new, more efficient planes so it can get on top of costs.
For markets: Splurgin’ on the emergin’.
IAG’s strength in the UK – and its growing presence in Latin America – could be a boon for investors, if new forecasts are to be believed. Some analysts think US stocks are too expensive, and expect the market to deliver annual returns of just 5% over the next decade. Stocks in the UK and emerging markets, on the other hand, might have the potential for much higher returns. If that leads investors to look beyond America’s airspace, it could be the wind beneath London-listed IAG’s wings.