LONDON – With talk from analysts about a British Airways-easyJet merger, I think this would definitely change the landscape, but will it be for worse or better? Welcome to The Editor’s Corner.
The Editor’s Corner is an op-ed series from AviationSource Editor-in-Chief James Field, who is going to give his thoughts (Maybe controversial) on all things going on in the aviation industry.
In case you have missed the last 28, feel free to browse through them before you continue to read this piece:
- The Editor’s Corner #1: The Industry Isn’t Ready for Summer 2022 Demand
- The Editor’s Corner #2: JetBlue’s Offer for Spirit Airlines Will Change The American Airline Dynamic
- The Editor’s Corner #3: Boris Johnson’s Damage To The Aviation Sector is Another Reason for Resignation
- The Editor’s Corner #4: PLAY Will Transform The Market with a Post-Pandemic Edge
- The Editor’s Corner #5: Detriment of the Boeing 737 MAX & 787 Is Causing a 777X-Based Aftershock
- The Editor’s Corner #6: Qantas’ Plans For The Future Will Turn Around Negative Times
- The Editor’s Corner #7: The P2F Market Is Hotting Up…
- The Editor’s Corner #8: O’Leary Is Gunning For Another Cheap Boeing Order
- The Editor’s Corner #9: Ukraine Crisis: Turkish Airlines’ A350 Snap-Up from Aeroflot May Have Something To Do With A Red Carpet…
- The Editor’s Corner #10 – Ukraine Crisis: Lessors Will Not Win The Russia Battle
- The Editor’s Corner #11 – Spirit Airlines Are Slowly Changing Their Mind…
- The Editor’s Corner #12 – The Indian Air Cargo Market Is Hotting Up
- The Editor’s Corner #13 – Video Footage From RedAir Flight 203 Highlights Dangers of Carrying Luggage During an Evacuation
- The Editor’s Corner #14 – The Spirit-Frontier-JetBlue Battle for Merger Will Be Remembered As A Mess
- The Editor’s Corner #15 – Flyr, Norse & Norwegian Have Opportunity to Capitalise on SAS’ Woes
- The Editor’s Corner #16 – The Airbus & Boeing Battle Will Heat Up At Farnborough
- The Editor’s Corner #17 – My Predictions for Farnborough Were Well Off…
- The Editor’s Corner #18 – Why Do Airports & Airlines Fight Over Chaos When Government is to Blame?
- The Editor’s Corner #19 – Manchester Airport Has Resolved Its Chaotic Period – But Improvements Are Needed…
- The Editor’s Corner #20 – Ukraine Crisis: Wizz Air Abu Dhabi’s Russia Return Was A Mistake From The Get-Go
- The Editor’s Corner #21 – More Than Meets The Eye to The Emirates-United Codeshare
- The Editor’s Corner #22 – Israel Banning Boeing 747s Will Have Massive Impact on Cargo Operators
- The Editor’s Corner #23 – Amid Their Chaos, Qantas Is Taking The Fight to Air New Zealand
- The Editor’s Corner #24 – The Russian Airline Industry Is Heading for a Nosedive
- The Editor’s Corner #25 – Downfall of Doncaster Represents The Beginning of the Regional Collapse
- The Editor’s Corner #26 – The A35K/Delta Order Rumour Mill Highlights Strong Momentum for Airbus
- The Editor’s Corner #27 – IndiGo Leasing 777s Reflective of Demand for Indian Travel
- The Editor’s Corner #28 – Airbus A321XLR Can Make Wizz Air A Global Success Story
A British Airways-easyJet Merger Would Change The Landscape
There has been a lot of talk stirred up by analysts that the consolidation of British Airways and easyJet through a merger arranged by IAG would make “perfect sense”.
It would definitely change the landscape of the UK airline industry and overseas, but would this consolidation be a positive or negative result?
For myself, this is a question that I want to answer, as we need to consider all other elements of the argument.
IAG Needs To Have A Post-Pandemic Rethink?
As mentioned by Russ Mould, who is the investment director at AJ Bell, he believes that IAG should engage with easyJet in taking over the carrier as part of a post-pandemic rethink:
“The pandemic has created concerns about the future of business travel, with companies globally realizing they don’t need to hold so many meetings in different locations. It’s far easier, cheaper, and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane.
“Therefore, companies like International Consolidated Airlines need to rethink their future sources of revenue as they may find that business travel doesn’t match pre-Covid levels.
“Owning EasyJet would significantly boost International Consolidated Airlines’ position in the leisure market and give it access to many prized airport landing slots.
“The key challenge is funding such a deal. International Consolidated Airlines is already ladened with large debts, and shareholders may prefer it to pay down these borrowings rather than spend billions on buying another airline such as EasyJet.
“Shares in EasyJet earlier this month traded at their lowest levels since 2011, which is the market’s way of saying it believes the company’s recovery from the pandemic will be very slow.”
Mould also mentioned that the likes of Wizz Air should consider an acquisition of the carrier too:
“Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning EasyJet. Additional airlines may also find a good rationale for owning EasyJet.”
“This suggests International Consolidated Airlines will face competition from other parties should it decide to make a move on the low-cost airline operator.”
What About Competition?
easyJet does operate a series of domestic flights within the UK, as does British Airways through its Shuttle services or BA Cityflyer itself.
If British Airways were to take on easyJet via a merger, then this could potentially push fares up a little higher, irrespective of other competitors such as Loganair and Flybe, who are on the scene too.
It would be a benefit to the BA side because they would have access to more domestic slots, and the same applies overseas with the many subsidiaries that the orange carrier has.
The merger wouldn’t have too much of a competitive impact overseas, as you have the likes of Wizz Air and Ryanair already competing with easyJet.
As Mould mentioned, if Wizz Air or Ryanair took a stab at purchasing easyJet, then I feel that would have more repercussions for pricing from an intra-European perspective.
Either way, it’s going to be an interesting thing to watch, especially if IAG does indeed decide to throw its hat into the ring for the carrier.
easyJet Needs The Stimulus…
It is also clear that easyJet has been struggling badly financially, even after the COVID-19 pandemic, with its losses expected to increase to £180m this year.
This has resulted in cuts to capacity, irrespective of whether the airline has more aircraft on the way or not.
What does remain clear is that easyJet is in need of some form of stimulus, with the airline exhausting all options at the moment to return to any form of profitability.
An acquisition from IAG would be, therefore, risky at the moment, as the conglomerate has a lot of debts to deal with already, meaning that the airline will bring on more debt if they do choose to acquire the carrier.
Cost of Living: Is Consolidation Needed?
With the cost of living crisis in the United Kingdom beginning to hit consumers, this will, of course, reduce spending, especially when major Summer 2023 schedules have been unveiled by numerous carriers.
Maybe now is the time for some form of consolidation to take place, particularly in the UK airline market, but overseas, the recession is also hitting European nations as well.
The assets that easyJet have are valuable in nature and could prove to be useful to IAG if they choose to streamline costs should they take on the airline.
But, if we are talking about further growth down the line once the financial uncertainty has passed, then ultimately, the consumer may have to pay the buck of such an acquisition through higher airfares.
Overall: It’s A Difficult Thing to Think About…
Personally, I am stuck in the middle of this. easyJet would benefit from the stimulus from a big conglomerate like IAG, but the consumer would be the one taking on the cost in the end.
It really is a difficult thing to think about, and given the financial volatility of the industry at present, it’s a decision that needs to be taken seriously, with the benefits clearly laid out.
Either way, it’s going to be interesting to see what happens in this space and whether we could see a major change-up as a result of external factors in the industry.