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IAG needs to rationalise its multiple airline brands: Walsh

IAG has indicated that it is looking at rationalisation of its multiple airline brands, although it intends to maintain the name of its latest acquisition prospect, Air Europa, at least initially.

Air Europa will be IAG's fifth airline brand in Spain behind Iberia, Iberia Express, Vueling and Level when it is absorbed into the group next year.

IAG chief executive Willie Walsh, speaking during an investor briefing on 8 November, said the dual-brand strategy with Iberia and Air Europa at Madrid is an "effective model" for the company.

"But clearly, operating the number of brands we have in that segment of the market doesn't make sense," he adds.

While there have been good historical reasons to maintain five brands in Spain, Walsh says the situation "needs to be rationalised".

"We're conscious of the fact that we need to have strong global brands, that are well-recognised, positioned in the right segment," he says. "We believe we can do that."

But he says that "too many" brands is "going to create some confusion".

Walsh declines to disclose much detail about IAG's plans for Air Europa, pointing out that the company is focused on ensuring that the various parties involved are "clear" and "understand what we're doing".

But he cities the example of Aer Lingus which, he says, had ambitious plans to expand which would have been "risky" for the Irish carrier as a standalone entity. Walsh says that IAG both supported and accelerated Aer Lingus's strategy.

"We believe that opportunity exists in Spain as well," he says, adding that Air Europa could strengthen the Madrid hub in the same way that Aer Lingus has helped established Dublin as a transatlantic hub.

Air Europa will cease to be a member of the SkyTeam alliance and will instead be placed under Oneworld carrier Iberia.

Iberia chief executive Luis Gallego told the investor briefing that Madrid, as a hub, is relatively weak with fewer international destinations and fewer countries served compared with other bases in Europe, with a transatlantic operation which is focused mainly on the South Atlantic.

"It's difficult to compete with the big ones," he says.

Air Europa is moving to a long-haul fleet of 29 aircraft, all Boeing 787s, from 2022. IAG's acquisition will give Madrid a long-haul capability similar to that of KLM's Amsterdam base, says Gallego, and IAG will develop the Spanish capital as a "360 degree hub", establishing connections which are currently not feasible.

Gallego says Iberia is running into a "limiter" at peak times and the additional capacity of Air Europa will help IAG to create a "smoother hub" at Madrid. Combining the networks could open up 1,000 new origin-destination pairs with only one stop, he adds: "Our customers are going to have more flexibility."

IAG says the Spanish international air transport market remains "highly competed", and the Air Europa acquisition will increase IAG's share from 17% to 19%, compared with Ryanair's 22% and EasyJet's 10%.

Although IAG's domestic market share will increase significantly – from 52% to 66% – Gallego says this needs to be seen in the context of the competing Spanish AVE high-speed rail network, which will still account for more than half of passengers to and from Madrid when compared with the combined IAG-Air Europa, Ryanair and Norwegian.

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