By Yadarisa Shabong
(Reuters) – IAG <ICAG.L>, the parent of British Airways and Spain’s Iberia, announced a 1 billion euro (£863 million) takeover of Spain’s Air Europa to boost its presence on routes to Latin America and the Caribbean.
The deal comes less than six months after a proposal by BA, Iberia and partners American Airlines <AAL.O> and LATAM Airlines <LTM.SN> aimed at reshaping international air travel in Latin America was struck down by Chile.
IAG shares rose as much as 2.3% to 555 pence in early London trading but some analysts said IAG may have to shed routes in order to win regulatory approval.
Ryanair CEO Michael O’Leary said his company will ask the UK’s market watchdog to force IAG to make divestments as part of its Air Europa takeover, a deal he said would be bad for competition.
“Potential remedies, perhaps in the form of slot release or behavioural restrictions, may be required and these could impact the potential synergies,” an analyst at Liberum wrote in a note.
IAG also owns carriers Iberia Express, Level, Ireland’s Aer Lingus and Vueling.
“We are not convinced that having just another brand platform is the optimal move, and could see it potentially combining with Level, Vueling or potentially Iberia Express after some time,” analysts at Bernstein said.
Air Europa serves 69 destinations, including long-haul routes to the Americas and the Caribbean. It had a fleet of 66 aircraft at the end of 2018.
It will initially keep its brand and as it gets integrated into the existing hub at Madrid it will be a standalone operation run by Iberia boss Luis Gallego, IAG said.
“This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs,” said Gallego, adding that Madrid had the potential to serve as a gateway between Asia and Latin America.
Norwegian Air <NWC.OL>, which has shaken up the market for travel across the Atlantic with cut price fares, last month signed a partnership with JetBlue Airways <JBLU.O> to enable European passengers to book straight through to around 100 U.S. cities.
IAG said it expected the Air Europa deal, which will be funded through external debt, to close in the second half of next year and for it to add to its earnings in the first full year after the closure.
(Reporting by Yadarisa Shabong in Bengaluru; additional reporting by Andres Gonzalez, editing by Patrick Graham and Jason Neely)