The airline giant intensifies its struggle for global dominance

IAG hopes the takeover of TAP Air Portugal will help it strengthen its advantage over European rivals. Photo: Markus Mainka/Alamy Stock Photo

After several difficult years, IAG, the parent company of British Airways, is once again planning global expansion.

With pandemic-related challenges behind it, International Airlines Group ( IAG is seeking to tighten control over transatlantic flights with its announcement of the purchase of TAP Air Portugal. The deal will expand access to Brazil's market of 215 million people.

IAG executives see TAP as the latest element in a bid to extend its advantage over European rivals on routes to North and South America.

As a result, they are mulling participating in the upcoming auction after the Portuguese government puts the flagship operator up for sale.

Luis Gallego, chief executive of IAG, said in March that he needed to «see the terms» of the sale before deciding on an offer , but acknowledged that TAP represents an «opportunity» for the business.

European airline consolidation is at a critical juncture, with IAG also seeking to acquire Spain's Air Europa, Deutsche Lufthansa vying for Alitalia's successor ITA, and Air France-KLM pursuing Scandinavian airlines.

If all deals are clear, regulatory hurdles and TAP will also find a buyer, Finnair will become the only major airline not part of the continent's three consolidated airline groups.

IAG is already a leading player between Europe and the US thanks to BA's joint venture with American Airlines, and its Iberia unit is the largest operator of services to Spanish-speaking parts of America.

However, the company was created with the aim of consolidation, adopting a structure designed to facilitate expansionary acquisitions.

TAP is particularly prized for the dozen or so routes it offers to Brazil, Latin America's largest economy and a former Portuguese colony.

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Portugal first approved the sale of a majority stake in September last year as demand rebounded due to the pandemic, prompting immediate interest from IAG.

However, the plan was put on hold after the collapse of the socialist government in November .< /p> Spanish IAG head Luis Gallego must convince the Portuguese government that the Lisbon TAP center will not remain in the shadow Author: Madrid Author: Nick Morrish

The Democratic Alliance coalition's victory in the March elections has returned TAP to the top of the political agenda, and its sale is seen as a priority as the new administration seeks to reduce the national debt and balance budgets.

IAG is likely to face a fight with Lufthansa and Air France-KLM for TAP, which also serves former Portuguese territories in sub-Saharan Africa, a region where British Airways, Iberia and their Oneworld airline alliance partners have a limited presence.

Gallego, a Spaniard, will have to convince the Portuguese government that TAP's Lisbon hub will not be eclipsed by Madrid, Iberia's main base.

The Spanish carrier helped form the first version of IAG through a merger. with British Airways in 2011.

This has since led to IAG being registered in Madrid, although its headquarters are located near Heathrow, at BA's head office in Waterside. The group's largest shareholder is Qatar Airways. The state-owned airline owns 25 percent of the shares.

TAP Air Portugal is in high demand thanks to the routes it offers to Brazil, its largest economy Latin America. Photo: Horacio Villalobos Corbis via Getty Images

As part of any sale, Portugal will also seek to ensure that TAP maintains flights to key destinations around the world, such as New York, which are considered vital to the economy.

Aer Lingus, bought by IAG in 2015, and TAP own fleets of the Airbus A321LR, a narrow-body model that can cross the Atlantic from its hubs in western Europe and is cheaper to operate than a wide-body jet.

John Strickland, an aviation consultant and former network planner at British Airways, said a takeover of TAP by IAG would make sense, although Portugal's moves after previous privatization attempts would raise some concerns.

IAG looked Almost 15 years ago, the Portuguese airline competed for TAP, but the Portuguese airline was eventually sold to a consortium led by JetBlue founder David Neeleman, but was partially renationalized after a change of government.

This was later accepted. completely under government control to save it from collapse when Covid stopped international travel.

Strickland said: “Potential investors should be absolutely confident that there will be no interference or pressure from the government to do so or otherwise solely for political and national reasons.»

IAG is also hoping to close its €400 million purchase of Iberia rival and transatlantic specialist Air Europa. Photo: BORJA SUAREZ/REUTERS

IAG,which reports quarterly profit on Friday, is separately working to complete its 400 million euro deal to buy Air Europa, a Madrid-based Iberia rival and another transatlantic specialist.

It comes after the European Commission said in April that the company believed the deal could limit competition and raise prices for travel both within Spain and on long-haul routes.

IAG said that as a result The takeover will have around 64% of long-haul flights from Madrid, in line with Air France in Paris and Lufthansa in Frankfurt.

Given the scrutiny, IAG will have to give up more slots and routes to win approval transactions.

In addition, politicians in Brussels also extended the deadline for a decision on Lufthansa's €325 million acquisition of a 41% stake. at ITA Airways, the Italian state carrier.

The German airline will have to soften the package of proposed measures again to win approval.

For the bloc's third deal, Air France-KLM is awaiting the EU's response to the November agreement to acquire a 20% stake in Scandian Airlines in a $1.2 billion deal also involving the Danish government.

SAS said it expected the investment to trigger some antitrust recommendations, although nothing that would disrupt the plan.

Finnair, once touted as another potential IAG target, remains independent after how the closure of Russian airspace upended its fueling strategy. traffic from East Asia to Europe via Helsinki.

In terms of IAG's finances, British Airways remains the main source of revenue, receiving just under half of the company's3.5 billion euros. operating profit last year.

The post-Covid earnings recovery (€29.45 billion in 2023) was also driven by Iberia and Aer Lingus, and the group also owns Barcelona-based discounter Vueling.

It is this number that IAG hopes will be enough to convince the Portuguese government of a possible sale, which will push the aviation giant back to its original goal of global expansion.