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International Airlines Group: Good results and realignment?

10-May-2011

In its first financial report since its inception, the International Airlines Group, which owns both British Airways and Iberia, has registered a first quarter net profit of EUR33 million. For the corresponding period in 2010, the carriers jointly posted a loss of EUR243 million, with the volcanic ash shutdown figuring into that result with the loss of 6 days of flying.

Additional statistics for the period show a 24.9% increases in RPKs against a 22.2% increase in ASKs. The premium cabins showed a 40% increase over 2010 and economy traffic was up by 22.6%.

This is good news for the group, which is now contemplating expansion—a move that may further shuffle the fragile alliance balance among the world’s carriers. Reuters has reported that IAG is interested in acquiring Portugal’s TAP. Preliminary meetings have apparently been held.

In line with the EU bailouts being offered to a number of European nations, Portugal has been forced to privatize the airline as one of the preconditions for aid. TAP is presently a member of the Star Alliance and key to that group’s South Atlantic links.

Continued attempts to dominate Latin America

The IAG carriers are members of oneworld, currently the strongest group operating in Latin America due to the presence of American Airlines and the LAN group of airlines. The current balance is already at risk due to the pending combination of LAN and Brazil’s TAM, which, if TAM moves to oneworld, would make that alliance’s presence the region’s dominant force.

The addition of TAP to oneworld would complete the picture by adding the link to Portugese-speaking Brazil to the existing Iberia coverage of the region’s Spanish speaking nations. If it were to happen, both Star and SkyTeam would have little presence in this growing region.

Others rumored to be interested in TAP are Lufthansa and the LATAM group itself, drawing a clear battle line between the two alliances, with influence on a whole continent at stake.

Ownership trumps alliance links

While real global consolidation is still in the distant future, this move by the IAG is a reminder that the current alliance structure is but an interim step in the way that the world’s airlines cooperate. But, absent ownership, those links can be shifted.  As we have seen with the Lufthansa ownership of Swiss, Austrian, Brussels Airlines and BMI, as well as the linkup of Air France and KLM, the only sure way of ensuring a carrier’s presence in an alliance grouping is through ownership.

IAG his made it clear that its future includes the acquisition of other airlines including possibly Finnair, in that case another oneworld partner, but further changes to existing alliance loyalties are always at risk.


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