Freed from EU rules, BA could reach great heights
Born from the merger between British Airways and Iberia in 2011, IAG has since also taken over Ireland’s Aer Lingus and Vueling, a Spanish low-cost carrier based in Barcelona to create an airline conglomerate.
The mergers came with all the usual corporate jokes about synergies, cost savings, global reach and branding.
The bigger the better, the familiar argument went.
In fairness, there were probably benefits in terms of buying power (although Boeing was probably always willing to take a call from BA if it wanted new planes), code and resource sharing and pooled expertise.
It certainly wasn’t a disaster like many mega-mergers have been. That said, it wasn’t a big hit either.
None of the major brands have seen their market position transformed, and there are many worrying signs that BA has in fact deteriorated under IAG’s control. It’s hard to see how a split would make the situation worse.
Second, the EU clearly intends to return to a nationalist air policy straight out of the 1970s.
AirFrance-KLM is now effectively under state control, with the government holding 29% of the capital. The same goes for Lufthansa, with 20% public ownership and a block on foreign control, and of course the new Italia Trasporto Aero, which, as far as anyone can tell, is just the Perennially loss-making Alitalia from Italy with a fresh coat of paint on the tail-fins.
Competition policy has been set aside – as long as you are a Mainland-based carrier.
And it is already clear that the governments in Berlin, Paris and Rome will do all they can to support the airlines in which they have invested so much money, and that the regulators in Brussels will support them in this move.
Compare that to the response of EU regulators in canceling IAG’s planned acquisition of Air Europa in December.
The UK should respond in kind.
We don’t want to bail out our airlines, or play nationalistic games, but we should also use assets like landing slots at Heathrow to promote our national airline and use trade deals to secure its rights elsewhere.
With IAG controlled from the EU, this will be very difficult. Indeed, we will fight with one hand (or, come to think of it, maybe two) tied behind our backs. And BA will suffer.
HSBC called this one fair.
IAG may protest, but at some point in the next two years the EU is likely to insist that the company split up and sell or demerge British Airways.
It would be easy for the UK to fight this and start offering concessions to prevent this from happening.
But why not just kiss her instead?
A standalone BA, focused on the UK and global market, dominating Heathrow and the lucrative Atlantic and Asian routes, could well be revitalized, invigorated and reinvigorated.
With the support of the British government and freed from EU rules, it could even become the world’s favorite airline again.