The Irish Government Wisely Agrees to Let IAG Buy Aer Lingus

Ohayou gozaimasu, everyone! I’m back from a week in Japan and it was fantastic. Stay tuned for trip reports in business class on an ANA 787 and Suites class on a Singapore A380. Both were excellent, as you’d probably expect. But those aren’t ready yet. For now, let’s get back to the business of airlines.

There were a lot of things that caught my eye last week, but I can’t write about them all. Today, I thought I’d talk about the culmination of a long process. IAG, parent company of British Airways, Iberia, and Vueling, has finally convinced the Irish government to allow it to add Aer Lingus to its trophy case. The deal really is a good one for both sides.

IAG Buys Aer Lingus

IAG has been trying to purchase Aer Lingus for quite some time now, but opposition from the government (which owns a quarter of the airline) was holding it back. It took some guarantees to maintain the brand and service levels into the UK in order to get the Irish government to come around. Yes, Ryanair still owns nearly 30 percent of the airline as well, but it has to sell all but 5 percent of that (though this is still under appeal). Regardless of what Ryanair decides to do, it likely won’t kill the deal.

That doesn’t mean that this is officially done though. The EU still has to sign off on it from an anti-trust perspective. But we’re at a point now where I’d be surprised if this didn’t happen. And it’s a good thing, for the most part.

There were three big concerns that were specific to this deal that caused some hesitation. Some of these were really unfounded.

  1. Losing Its Airline
    One of the concerns was that Ireland would lose its national airline and would just become a set of routes in another airline based elsewhere. While that might make more sense if it were possible, that’s not how IAG’s model works. IAG prefers airlines to keep independent brands with separate management teams, as evidenced by the way it handles British Airways, Iberia, and Vueling.

    That doesn’t mean Aer Lingus will just do whatever it wants as a completely independent arm, however. We know that the deal is going to bring Aer Lingus into the joint venture with American over the Atlantic. Aer Lingus will also join oneworld and start using Avios as its frequent flier point currency. And you know there will be plenty of “synergies” along the way that will be discovered.

    To placate the government, IAG formally agreed to keep the Aer Lingus brand as an airline based in Ireland. This wasn’t a stretch anyway.

  2. Slash and Burn
    Another concern is that Aer Lingus would see major cuts in the same way that Iberia did. But there’s a big difference here. Under its previous regime, Christoph Mueller already did the slashing that Aer Lingus needed to become viable, and it has been making money. Iberia was a bloated company that was in desperate need of change to even have a chance of profitability when IAG showed up. Aer Lingus is fairly well-positioned, so the concern about slashing and burning should be minimal.
  3. Heathrow
    The last concern is probably the most valid. Aer Lingus holds a lot of slots at Heathrow and uses them to fly to various cities in Ireland. Some think IAG wants those slots for British Airways to use on other routes. That’s fair, but it should also happen to some extent. After all, if BA and Aer Lingus both fly Heathrow to Dublin, then why not fly fewer flights with bigger airplanes and then use the remaining slots for something else? I suppose the bigger concern from the government is that smaller cities will simply lose flights to Heathrow entirely. That’s a very fair concern.

    To compensate for that, IAG says it will commit to maintaining existing schedules between Heathrow and Dublin, Shannon, and Cork for 7 years. All other Aer Lingus Heathrow slots will be used for flights to Ireland for 5 years, though it doesn’t say on which routes. And that commitment was enough to get the Irish government to make a move.

Beyond that, of course, there are the usual merger concerns. Will this be good for travelers? Will it be anti-competitive? The EU needs to consider that now.

For passengers, there is a lot of good here. Joining the IAG empire will mean people in Ireland will have seamless access into a much bigger network. And the airline’s re-entrance into oneworld (it was a member for several years) is also going to bring more benefits. Plus, IAG expects to grow Dublin as a Transatlantic jumping-off point.

There are some areas of concern. First is Heathrow since there isn’t competition from there to Ireland if this goes through. But Ryanair has such an enormous presence from Ireland to other London airports and Europe in general that this should be a fairly minor concern.

Transatlantic competition may be another area to think about. After all, there are very few airlines outside of the big three alliances that fly over the Atlantic these days. Aer Lingus has been a lower fare carrier, especially in relation to one way pricing. It would seem likely that this would change, but then again, maybe not. IAG may find that the Aer Lingus strategy is a good strategy to use for that carrier. As we saw with Vueling, IAG isn’t necessarily looking to have a single strategy over every carrier it owns. It just wants the right strategy for that carrier.

Assuming this does go through, we’ll find out how this plays out soon enough. But I tend to believe this is a smart move.

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16 Comments on "The Irish Government Wisely Agrees to Let IAG Buy Aer Lingus"

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Foxthomasb
Member

Will it be good for travelers? No. Will it be anti-competitive? Of course. That’s what airline mergers are all about. Eliminating competition.Sacking staff. Cutting capacity. Raising prices because we can never be profitable enough. How many transatlantic competitors will be left after all these mergers? Those airlines that remain will have “deeply discounted fares” of $1300+ in the dead of winter and cry about having to feed us a horrible meal and to check a bag for free. Don’t dare ask for a glass of rot gut wine with you meal.

Matt
Guest
I don’t have any issues with the merger. Ultimately it holds capacity from the UK to Ireland at a reasonable level, gives IAG some flexibility in the way it serves customers outside of London (Manchester, Birmingham, Glasgow, ..), and gives them a cost competitive option for inbound load to IE, UK, and in to Europe. I can see them marketing heavily the pre-clearance to the US and the beyond routes from DUB to the UK solve a lot of problems that Virgin Atlantic couldn’t solve (Little Red shutting down). I don’t see any way possible this has impacts on the… Read more »
David SF eastbay
Member

Why does BA need Aer Lingus in the first place if it isn’t to get its hands on more LHR slots? As you said, they can get more slot use from cutting dupe flights and if means keeping Ryanair from getting a hold of those slots by BA taking over Aer Lingus instead.

green747
Member

UAL and the Star Alliance will undoubtedly its presence in Ireland especially in Dublin and Shannon. The current level of cabin service from Aer Lingus dictates the need for competition. Correct me I’m wrong but I thought Aer Lingus at one time was a member of the Star Aalliance?

Bobber
Guest

They’ve had agreements with Star and with One World, but I don’t think they’ve been members of either…..

Kurt
Member

They were a member of Oneworld from 2000–07

green747
Member

You are right Bobber. Aer Lingus also has to update their business class offering as it seriously lags behind other Trans Atlantic Carriers.

mikebeau
Member

My guess is that it’s a perfect gateway from the rest of the UK. They can keep Aer Lingus on LHR-EI cities and free up BA slots from EI and a few from the rest of UK to do more long-haul.

mandel.jerry1
Member

Oh!-Oh! IAG will add the ripoff fuel surcharges to Aer Lingus.

Anonymous
Member
You should not under estimate Mr. O’Leary! While owning almost 30% of Aer Lingus, he has constantly been rejected as a suitor. That decision has been upheld by successive courts in the U.K. and in Europe, but is still under appeal. This will be his golden opportunity to generate significant publicity for his now ‘kinder, gentler, softer,’ Ryanair. Will IAG have the patience for protracted delays? Who knows! MOL also wants to start up his own transatlantic LCC, and while I never saw EI as being useful in that regard stranger things can happen. Any guesses how long it will… Read more »
W Scott Moyer
Member

Maybe now, IAG will bring Aer Lingus to PHL !! Still waiting for IB.

David
Guest
Aer Lingus is a medium sized airline in a rapidly consolidating market. N. America has 6 major carriers, plus a handful of others- Europe has well over 100 airlines. Yes, Aer Lingus is currently profitable, but the Irish Govt has a choice right now – either sell up and keep Ireland as a significant part of a bigger airline, or risk seeing EI crumble over the future years (particularly when the next recession arrives). Honourable airline that has done well for itself and its country and now deserves plaudits to its owner for realising when its time to give up… Read more »
Mike Payne
Guest

I see Scott M’s thought on PHL … any thoughts on other city pairings? … PHX, SEA, DFW, MIA (or do they go there already?) … could be fun to watch if it happens

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