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International Airline Group’s (IAG) acquisition of Air Europa will strengthen Iberia’s position in Latin America. It allows the Spanish airline more access in the Americas, as Air Europa currently operates to 14 Latin American countries.
Enhancing connectivity
The presence of Spanish airlines in Latin America is well documented. Both Iberia and Air Europa have forged their presence in Latin American markets. Before the COVID-19 pandemic, Air Europa flew to 22 cities in 14 Latin American countries. Iberia flew to 16 countries (20 cities).
The new deal, set to be complete in the second half of 2021 (although IAG won’t pay the €500m until 2026), will help IAG’s ambitions in Latin America, especially since it lost the chance to forge a joint venture with American Airlines and LATAM in May 2019. In October, Willie Walsh admitted that Latin America is an essential segment for the company. He said, “We have a lot of direct services, and that’s one of the strengths of IAG, and particularly the Iberia network, with the direct distribution that we have into Latin America. And it remains an important focus market for us.”
Before the pandemic, European carriers accounted for 75.5% of the capacity to the Latin American market, according to OAG. Only a few Latin American airlines operated transcontinental flights to Europe, like Aeromexico, LATAM, Avianca, Aerolíneas Argentinas, and Azul.
Iberia’s powerhouse presence in Latin America
Iberia operated up to 300 weekly flights to Latin America before the COVID-19 pandemic and expects to return to these levels in the future. In 2021, Iberia celebrates 75 years of history connecting Latin America and Europe. The airline operated its first flight between Madrid and Buenos Aires on September 22, 1946, and hasn’t looked back since. Iberia is the airline specialist in Latin American for European routes.
IAG expects to forge a continental hub in Madrid-Barajas International Airport, competing directly with other European airports. The acquisition of Air Europa “will be an unprecedented push to the connectivity of our country through Madrid’s hub.”
If we consider the pre-pandemic seat capacities, once Air Europa’s acquisition is complete, Iberia should have at least 25% of the market share, putting it ahead of Air France-KLM, which had the largest combined capacity share before COVID.
Final analysis
IAG suffered a big blow when the Chilean Government blocked the joint venture with American and LATAM. It was aggravated even more when Delta bought a stake in LATAM’s earlier last year.
Air Europa’s acquisition will certainly push Iberia, and IAG, as the leading operator between Europe and Latin America. Moreover, the current Chapter 11 bankruptcies of three Latin American airlines, plus the uncertainty in Air France-KLM, can only benefit Iberia’s strength in this market.
Iberia will benefit from the geographical advantage of Madrid’s hub and the linguistic barrier faced by other competitors. Additionally, Air Europa’s acquisition will enhance Iberia’s route map in Europe, a big plus for Latin American travelers. Although, it remains to be seen whether other airlines, like Ryanair, don’t start legal actions against the buyout.
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