Competitors to British Airways (BA) and Iberia, the Spanish flag carrier, were quick to attack the deal made this week to merge the two airlines.
Michael O’Leary, chief executive of Ryanair, who has seen his attempts to take over rival Irish carrier Aer Lingus blocked by European competition authorities, said: “I would characterise it as two drunks . . . holding each other up on the way home. All you get when you put two high-fare, loss-making airlines together is even higher fares and even bigger losses.”
He said that he didn’t think that the deal would significantly change the face of European travel.
Sir Stelios Haji-Ioannou, founder of easyJet, also separately compared the rival airlines to drunks propping each other up. He said: “This is the classic story of two drunks that believe that they can walk better together by supporting each other. But these are unprofitable failing businesses that should each do the honest thing: stop buying more planes, scrap their old ones and stop flying their respective unprofitable routes. No need to merge to do that . . . and it’s better for the environment too!”
Under the terms of the merger BA and Iberia will hold about 44 per cent of landing slots at Heathrow, the UK’s biggest airport.
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Sir Richard Branson, president of Virgin Atlantic, was quick to pick up on the admission by Willie Walsh, chief executive of BA, that Heathrow is full. He said: “Finally Willie Walsh is admitting what everyone knows to be true — Heathrow is full — it is about time he says the same to the regulators. BA and American Airlines should rewrite their submission [to regulators for antitrust immunity] to reflect this.”
Virgin is already worried that the proposed tie-up between American Airlines and BA to operate transatlantic routes will result in a lack of competition.
However, industry analysts were more receptive to the merger, bringing with it the possibility of savings for both businesses. Andrew Fitchie, an analyst at Collins Stewart, said: “The revenue environment appears to have stabilised and both management teams have plans in place to cut costs.
“To turbo-charge a return to economic returns we have long held that BA and Iberia both need this merger and need the antitrust immunity with American Airlines.”
Jonathan Jackson, head of equities at Killik & Co, the stockbroker, said that the possible savings were slightly better than expected. “Although these benefits are not expected to be fully delivered until the fifth year, they will go a long way to restoring confidence in the profitability and sustainability of the airlines,” he said.
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Analysis by David Robertson
The merger of British Airways and Iberia will expand the networks of both airlines and enhance their revenue-raising opportunities.
BA is strong on routes to North America, the Middle East and Asia while Iberia is dominant on the South Atlantic to Latin America.
Merge the two networks and what will BA passengers get? An additional 59 destinations to choose from and Iberia passengers get 98. There are only 48 shared destinations and most of those are in Europe. For business-class passengers one of the big advantages of this larger network is that it creates more opportunities for accumulating air miles — and more destinations to spend them on. In addition, the larger route network should give passengers greater flexibility in flight times and frequency.
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However, this is not a merger of equals when it comes to product quality. BA’s business class cabins are among the best in the world and win numerous awards, while Iberia’s are not regarded in such a positive light. Even though BA passengers may now have the opportunity to fly with Iberia to their destination of choice, they may choose not to bother. For example, if a businessman wants to go to Santiago, Chile, and his company has an account with BA, he will now have two options.
He can fly to Madrid and then go with Iberia direct to Santiago or he can go with BA on the existing flight to Rio de Janeiro and connect on to a LAN Chile flight to Santiago.
Tom Otley, editor in chief of Business Traveller magazine, said: “I personally would go with BA because you will get ten hours in a great business class and then to the last hop with a local carrier. BA’s business class is better than Iberia’s so the Madrid connection may only be popular, although it will offer passengers greater flexibility in terms of timing.”