EU opens investigation into proposed merger of two Spanish airline groups

The EU has opened an in-depth investigation to assess the proposed acquisition of Air Europa by IAG, two of Spain’s biggest airline groups, under the EU Merger Regulation. What happens next could reduce competition and cause the price of domestic and international flights from Spain to increase.

The EU Commission is concerned that the proposed transaction may reduce competition in the markets for passenger air transport services on Spanish domestic routes and on international routes to and from Spain.

Executive Vice-President Margrethe Vestager, responsible for competition policy, said, “IAG, which flies with Iberia and Vueling among others, and Air Europa are leading airlines in Spain. They are also key providers of connectivity between Spain, the rest of Europe and Latin America. We will carefully assess whether the proposed transaction would negatively affect competition on domestic, short-haul and long-haul routes to and from Spain, possibly leading to higher prices and reduced quality for travellers.

“Although the financial situation of many airlines is still fragile, there are signs that demand for air transport services is recovering from the coronavirus crisis. It is important to ensure that the recovery of the sector takes place in a competitive environment preserving sufficient choice for travellers,” she added on June 30.

IAG and Air Europa are respectively the first and third largest providers of scheduled passenger air transport services in Spain. They both operate a network of Spanish domestic routes, as well as short-haul routes between Spain and other countries in the European Economic Area or outside the EU, and long-haul routes between Spain and the Americas.

The Commission’s preliminary market investigation revealed that IAG and Air Europa compete head-to-head for passenger air transport services in Spain. This includes on several routes from Madrid to the US and Latin America, and on several domestic and short-haul routes, including feeder traffic routes bringing passengers to Madrid to continue their journey on long-haul flights to the US and Latin America.

At this stage, the Commission is concerned that the proposed transaction could significantly reduce competition on 70 origin and destination city pairs within and to or from Spain, on which both airlines offer direct services. On some routes, IAG and Air Europa have been the only two airlines operating.

The Commission is also concerned about the effect of the proposed transaction on routes on which other airlines rely on Air Europa’s domestic and short-haul network for their own operations at the Madrid airport and a number of other EU airports. Without Air Europa’s feeder traffic, some airlines may decide to terminate their services to international destinations also served by IAG, reducing choice for travellers.

At this stage, the Commission found that competition from other airlines, including from European low-cost carriers would likely not provide a sufficient constraint on the merged entity on the routes where it would hold high market shares. Similarly, the competitive pressure of European network airlines or Latin American airlines appears insufficient.

IAG, based in Spain and the UK, is the holding company of the Spanish flag carrier Iberia and the Spanish low-cost carrier Vueling, as well as the UK flag carrier British Airways, Level and the Irish flag carrier Aer Lingus. IAG is the third largest airline group in Europe, after Ryanair and Lufthansa, and the largest airline group in Spain.

Air Europa, which currently belongs to Globalia, a Spanish tourism group, is the third largest airline in Spain – after IAG and Ryanair – and the only other network carrier having hub-and-spoke operations at the Madrid airport.

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