Hello and welcome to our Monday Briefing for the week beginning 16 April 2018, summarising the main developments in air travel over the past week, and a look the week ahead.
IAG confirms interest in Norwegian
The big story this week has of course IAG’s expression interest in Norwegian.
As reported last week, there is very little that is known at the moment, beyond the fact that IAG has acquired a 4.61% stake in Norwegian. However, that will not stop us indulging in speculation and guesswork.
According to The Sunday Times IAG had been quietly building up its stake over a period of time. Both IAG and Norwegian were clearly caught by surprise when Bloomberg first broke the story.
If IAG does ultimate acquire Norwegian, it would be the fourth airline to join IAG since its original formation after Aer Lingus, bmi and Vueling.
It can be said that confidence that IAG has been studying Norwegian for quite some time and this bid is the sort of “transformational” acquisition of a strong brand that leads a market segment that IAG seeks. IAG will also disregard what it would call “noise” in the press, online and from other quarters about any bid.
In terms of what happens next, it is worth recalling that IAG’s first approaches to Aer Lingus and Vueling were rebuffed. IAG’s negotiations with Lufthansa to buy bmi were punctuated by counter-bids and protests from Virgin. The original merger of BA and Iberia which led to the formation of IAG was also dogged by uncertainty as to whether it would go ahead.
What is unique about a possible Norwegian bid is the strength of the brand in both its home market and in the UK. Neither Iberia nor Vueling have made any significant in roads into the UK market under IAG. Indeed, both airlines have suspended some routes from London. There is no question that IAG would maintain the Norwegian brand given its strength in Northern Europe. The most significant question is what happens at Gatwick.
Norwegian has built up a significant operation at Gatwick with approximately 40 departures a day and whilst there would no doubt be a review of Norwegian’s operations at the airport, it is far from certain they would all be subsumed into BA. When IAG bought bmi in 2012, even though it seemed obvious that it would be merged into BA, some at IAG were pressing for it to remain separate and BA pilots offered productivity concessions for the two operations to be merged.
There has also long been the question as to whether a “twin brand” approach as per Qantas/Jetstar is a better approach for BA as opposed to trying to compete with low cost carriers whilst still trying to maintain its premium positioning. However, these decisions will ultimately be made by IAG, not BA.
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