IAG/Air Europa: EU Competition Commission ignores wider airline economics

IAG's decision to pull out of its planned acquisition of Air Europa was not really a surprise after reports emerged of the EU Competition Commission's ongoing concerns, even after IAG's offer to cede 52% of Air Europa's routes.

This offer of remedies was not enough for the Commission. CAPA - Centre for Aviation analysis helps to explain why: based on the week of 29-Jul-2024, the merger would have given the enlarged IAG more than half of the seats on 49 of Air Europa's 59 routes, or 83% of the total.

IAG has come to the sensible conclusion that further remedies would make the acquisition uneconomic. Instead, it has chosen to terminate the purchase and pay a EUR50 million break fee.

The competition authority's focus on individual routes and airports was always likely to lead to concerns with this deal. However, this traditional approach ignores wider airline industry economics, the fragmented nature of European aviation and the needed role of consolidation in driving up returns.