Absolute madness. The competition authorities shouldn't allow the EU3 to become so much bigger through large takeovers like this. And even if they were to, having so much market consolidation at a single hub is madness - at least arrange it in a situation where a EU3 member is taking over an airline in a market that it isn't dominant in (eg LH Group taking over Air Europa, AFKL taking over Norwegian or Wizz and IAG taking over Condor).
Hardly. Ever heard of EasyJet and Ryanair?
Neither of them flies domestically within Spain. Nor does Wizz. Looking at Easyjet's website, if I want to fly MAD to BCN I have to connect overnight via GVA.
A quick look at the Ryanair website shows that they have 9 domestic routes from Madrid, 11 from Barcelona, 10 from Palma among others, granted they currently don’t fly MAD-BCN, but Ryanair does fly domestically within the Iberian peninsula
I don't see domestic ex-MAD being an issue. Those are Air Europa's routes from MAD:
ACE: competing with Iberia and Ryanair
AGP: competing with Iberia
ALC: competing with Iberia
BCN: competing with Iberia / Vueling
BIO: competing with Iberia
FUE: competing with Iberia and Ryanair
LCG: competing with Iberia
LPA: competing with Iberia and Ryanair
OVD: competing with Iberia
SVQ: competing with Iberia
TFN: competing with Iberia and Ryanair
VGO: competing with Iberia
VLC: competing with Iberia
AGP, ALC, BCN, SVQ and VLC have already high-speed train and entirely focused on connections. MAD-BCN being an IAG monopoly poses no issue b/c the high-speed train is its real competition (UX is only 2/3 daily focused on connections). BIO, LCG, OVD and VGO are getting high-speed train soon. With the "flight shame" stuff in Europe, this comes quite handy as those routes have an ecological alternative (aka train), so UX quitting the market means less planes.
Islands is a different story, with Norwegian quitting and Ryanair reducing frequencies to the Canaries. Maybe Binter could get into MAD-Canarias as they have started serving some markets.