29 July 2008

BA plans merger with Iberia

It's not the first time British Airways and Iberia have flirted. Their affair started a decade ago when both companies were part of the Oneworld Alliance. Perhaps it is a bit more aggressive than flirting, but BA did consider a possible takeover of the Spanish national air carrier, but ended up pulling out of the whole affair, while both companies hold stock in each other. But this time talks are bilateral and it seems it will help both sides in the new transportations landscape being formed around us in a world of ever increasing fuel and raw material prices.

According to statements made by BA's CEO Willie Walsh, a merger looks like an attractive option, offering both sides the potential to enlarge their networks and it would benefit the shareholders of both companies. In fact, BA stock rose by 7.5% and Iberia by 15% when the talks were announced, even though they will take several months and regulatory clearance will be necessary. Even in the case of a merger, the two entities would continue to exist separately, thereby each country would keep its national air carrier, just as it happened in the case of Air France and KLM. No statements have been made as of yet on the possibility of redundancies.

As the economy worsens this move will help both companies continue to fill their planes, as BA will most probably use its Heathrow base as a gateway to the Middle East and the US and Iberia's base in Madrid will provide services to Africa. An interesting fact is that despite all their difference in value and fleet size, both companies transported more than 30 million passengers last year. Competitors will undoubtedly voice concerns on consumer choice and ticket prices as this new company would fill up nearly half the slots at Heathrow. However, regulatory bodies will surely have to approve the move and make sure that consumers are protected.


Anonymous said...

This is truly worrying. Such mergers are not great for competition and the economic crisis calls for cheaper tickets, not higher prices.
This is good for noone.

Anonymous said...

Market consolidation is an inevitable effect in crisis periods.

As company costs raise and smaller companies cannot remain profitable, thus they get absorbed by the bigger ones, who manage to benefit from economies of scale, and achieve horizontal as well as vertical integration.