Europe’s new airline superpower arrives as IAG takes off

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A “third European airline force” makes its debut today with the formal launch of International Airlines Group, created through the merger of British Airways and Iberia.

That’s the view of Willie Walsh, IAG chief executive and outgoing boss of BA, who is convinced that the move elevates the two partner carriers into the big time and will provide a springboard for even greater things.

“This creates for Europe a third major force in world aviation,” says Walsh, who famously revealed last year that he had drawn up a list of potential future partner airlines.

“IAG’s strategic ambition is to provide a platform that is attractive to other like-minded airlines to join us,” he says.

iag signing, newscast 
© Newscast
(Centre L-R) IAG Chairman Antonio Vazquez, Chief Executive of London Stock Exchange Xavier Rolet and IAG CEO Willie Walsh as IAG shares begin trading for the first time on the London Stock Exchange.

“Both companies now have the feeling that working together everything is possible, because we have a much broader way of looking at the world,” he says.

The oneworld alliance aligned group, which began trading on the London and Madrid stock exchanges today (24 January), may be a new “superpower” but it can’t yet rival Europe’s other two giants Air France-KLM and Lufthansa, on paper. Like Air France and KLM, BA and Iberia continue to operate as separate entities, but their combined traffic (based on last year’s Airline Business World Airline Rankings which covers the 2009 fiscal year) means it is placed sixth behind its two European opponents.

In terms of revenue, IAG lies seventh in the rankings while its fleet of some 340 aircraft puts it eighth. It trails Air France-KLM and Lufthansa on both metrics.

 

But the merger isn’t all about size, points out Vazquez. “We’ve expect to achieve €400 million in annual cost savings by year five through synergies – one third from revenue and two thirds from cost,” he says.

There is a good fit between the two airlines’ long-haul networks, with BA’s strength on the North Atlantic complemented by Iberia’s powerful presence between Europe and Latin America. Added to this is the recently awarded anti-trust immunity awarded to Iberia and BA – along with oneworld partner American Airlines – for their transatlantic business. The partners are already beginning to reap the benefits from this.

There is also some fleet commonality – both carriers fly Airbus A320s on their short-haul network – and this will be further enhanced when IAG uses its buying power to negotiate a huge joint deal for new long-haul types to replace BA’s Boeing 747-400s and Iberia’s older A340s.

Walsh and a small team of dedicated IAG staff have taken up residency on he edge of London Heathrow airport, down the road from his old office at BA’s Waterside headquarters. Walsh will also have a presence in Madrid, as will Vazquez.

BA’s former chief financial officer Keith Williams succeeds Walsh at BA, while Iberia’s former chief operating officer Rafael Sánchez-Lozano takes over from Vazquez at the Spanish flag carrier.

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NEW WORLD ORDER 

The merged BA/Iberia will be the sixth largest group by passenger traffic

Traffic top ten (2009 RPKs)

  1. Delta Air Lines
  2. United/Continental
  3. Air France/KLM
  4. American Airlines
  5. Lufthansa Group
  6. British Airways/Iberia
  7. Emirates
  8. Southwest Airlines
  9. Qantas
  10. US Airways

The merged BA/Iberia will be the eighth largest group fleet

Fleet number top ten (as of mid-2010)

  1. Delta Air Lines (739)
  2. United/Continental (687)
  3. American Airlines (614)
  4. Southwest Airlines (543)
  5. Lufthansa Group (459)
  6. Air France-KLM (367)
  7. US Airways (346)
  8. British Airways/Iberia (339)
  9. China Southern Airlines (324)
  10. Skywest Airlines (293)

The merged BA/Iberia will be the seventh largest carrier by revenues

Financial top top (by revenues $ billion for full year 2009)

  1. Lufthansa Group ($31.0bn)
  2. Air France-KLM ($29.7bn)
  3. United/Continental ($28.9bn)
  4. Delta Air Lines ($28.1bn)
  5. FedEx ($21.6bn)
  6. American Airlines ($19.9bn)
  7. British Airways/Iberia ($18.9bn)
  8. Japan Airlines ($16.4bn)
  9. ANA Group ($13.3bn)
  10. Emirates ($11.6bn)