MERGERS AND ACQUISITIONS

Iberia and British Airways Merger



Iberia and British Airways Merger

The international merger between British Airways and Iberia was recently announced. This integration will give birth to the world's third largest airline. Achieving this result however was not an easy process. Through many discussions around aspects such as the funding of their pension scheme, British Airways and Iberia eventually found a way to overcome them and reach an agreement (Doganis, 2012, pp.45).

Now that the European Commission and Merger Regulations Agency has validated the deal, nothing stands between this merger. The new entity, based in London, will be called International Airlines Group and the shareholders of British Airways will own 55% of the company. The Iberia and British Airways brands will continue to exist while the group will now be able to offer flights to more than 200 destinations around the world, carrying over 60 millions passengers each year (Dut, 2008, pp.1605-1609).

While this merger will bring many advantages to both the companies and their customers such as cutting costs and improved competition, there are also likely to be many challenges for employees of both companies. The fact that British and Spanish cultures can be really different will very likely create pitfalls and obstacles that will be hard to overcome with a high level of cultural understanding and sensitivity

How big will the combined company be?

The airline's annual revenues of €15bn (£13.4bn) make it Europe's third largest airline by revenues, behind Germany's Lufthansa and Air-France KLM. In global terms, it will be the sixth largest behind a list that is dominated by US carriers by virtue of the huge American domestic market.

What will the new company be called?

Like Air-France KLM, BA and Iberia will be separate operating companies with distinctive brands owned by an over-arching holding company. That company is, for now, called TopCo. Willie Walsh, the proposed chief executive of TopCo, admitted it was not the snazziest of titles and that the company will get a new name over the next year (International Airlines British Airways & Iberia Merge, 2012, pp.78).

What are the implications for consumers?

Willie Walsh dismissed as "total nonsense" warnings that fares will increase on some routes, perhaps reflecting the fact that a major opponent of BA's consolidation plans is Virgin Atlantic, Walsh's least favourite airline. A combined BA and Iberia will offer 205 destinations to their passengers, compared with 141 on BA's network, so there will be more choice. And with a third runway at Heathrow unlikely to happen, more and more BA passengers could find themselves flying to global destinations such as China and Africa through Iberia's Madrid Barajas hub (Kepos, 2007, pp.12).

What about ticket prices?

John Strickland, an industry consultant and former BA manager, argues that the new business will have limited scope to ramp up fares. "BA and Iberia already co-operate a lot on the Spain-to-UK routes, but their market share is relatively small thanks to competition from low-cost carriers. On long-haul their networks don't overlap very much so it's more of an opportunity to compete ...