IAG’s Purchase of Air Europa is Very Bad For Passengers
If approved by regulators, the deal would give IAG a dominant position in the Spanish air travel market, particularly on long distance flights. IAG already controls Iberia, the dominant player in Madrid, and ultra-low cost carrier (ULCC) Vueling, the dominant player in Barcelona. It also operates LEVEL, a long-haul low-cost airline operating in Barcelona (and Paris Orly). Iberia and Vueling are the two largest airlines in Spain, Air Europa is the third biggest.
Taking Air Europa off the board would dramatically reduce competition across the carrier’s current network. Few if any additional routes will be enabled by the additional bulk of the merged carrier. Instead, it is far more likely that Iberia will draw down much of the Air Europa network (particularly on short haul flights) and consolidate the Madrid hub. In particular, there are three types of passengers who would suffer the most due to the merger; domestic passengers within Spain, travelers from Spain to Latin America, and passengers flying between South America and Europe more broadly.
Combined Carrier Would Have 84% Domestic Marketshare Within Spain
The title above isn’t a typo; Air Europa, Iberia, and Vueling together operate about 84% of the seat capacity in the domestic Spanish market. Looking specifically at Madrid, the merger would create a monopoly on nine domestic routes (red routes in the map below) and reduce competition from three to two carriers on a further three (yellow).
The monopoly markets are primarily domestic business travel markets from Madrid (excluding Fuerteventura and Lanzarote), and while there is high speed rail serving as competition for some of these routes the merger is still likely to push fares upwards substantially. In many of these markets, the two carriers each operate 3+ daily flights, and Iberia is likely to reduce duplicative capacity. On a few routes, the carrier schedules are more dispersed, and in those cases passengers may benefit from additional frequency, though it is likely to be paired with higher fares.
Meanwhile on routes between Madrid and Europe or North Africa. Air Europa flies mostly to major European cities like Rome, Paris, and London, and these routes are more competitive, with European full service carriers and ULCCs alike offering substantial capacity to and from Madrid. However, in many markets, the merger will reduce competition from three carriers down to two. And because Air Europa tended to have lower prices than most European full service carriers, this will still harm passengers on routes to places like Amsterdam, Munich, and Zurich.
The Loss of Air Europa’s Long Haul Network Is Likely to Drive Up Fares
Merging Air Europa’s long haul network into Iberia would be a substantial loss for both origin and destination (O&D) travelers flying between Latin America and Spain, and passengers connecting between South America and Europe. an Air Europa-Iberia merger would create a monopoly on five long haul routes and drop the number of competitors from three to two on an additional four. In these markets, Air Europa is the primary pricing constraint on Iberia – that would disappear post-merger.
Of the remaining 13 long haul routes at Madrid, six are operated exclusively by Air Europa, and seven would retain competition from at least three carriers. However, even in these markets, the merger is likely to have an anticompetitive impact. Of the routes with multiple competitors, Cancun, Havana, and Santa Cruz are only served by leisure carriers who don’t offer meaningful connectivity via Madrid. This harms O&D passengers in those markets traveling to and from the rest of Europe.
At Sao Paulo and Lima meanwhile, LATAM Airlines is the main competitor. The problem with this is that LATAM and IAG are currently pursuing a joint venture between Europe and South America. If said joint venture is approved, both of those markets would drop from three competitors to two, and in each case (Plus Ultra at Lima and Air China at Sao Paulo), the third competitor would operate less than daily flights. Only New York JFK (with multiple competitors at the same airport plus United down the road at Newark) would retain substantial competition, and not suffer any ill effects in terms of onwards connectivity (since there are multiple nonstop and one stop competitors at JFK for every short and medium haul route flown by Air Europa).
From all of these destinations, a secondary competitive challenge is the reduction of competition on one-stop itineraries to Europe. For passengers flying from Latin America to Europa, the two best-positioned hubs are Lisbon (home to TAP Portugal) and Madrid (home to Iberia and Air Europa). An analysis published at airliners.net found that 36% of Air Europa passengers were connecting over Madrid and that the largest connecting traffic flows were between Latin America and Europe. The same flow dominated for TAP Portugal at Lisbon (42% connecting) and Iberia at Madrid (49% connecting). With the merger, IAG will be able to eliminate one of the two main competitors for this traffic flow, which is likely to push up one-stop fares substantially.
https://www.travelcodex.com/iags-purcha ... assengers/BA777FO wrote:There is competition on virtually every domestic market in Spain (besides Canaries and Balearics) from high speed rail (AVE) - the railway network has the biggest percentage share of the market too at 53%. The market involves all methods of transport, not just by air. If Iberia raise prices more people will simply travel by rail.
You're comparing apples and oranges. IAG would have 84% domestic market share within Spain.
BA777FO wrote:I'd tone down the "nonsense" if I was you! This is exactly what the EU Commission will be looking at. IAG will have less than 50% of the total domestic transport market taking rail into consideration, in Spain overall IAG with UX will control just 19%. Ryanair has 22% market share of the overall Spanish market and virtually all long haul routes that IB&UX operate face competition from another carrier.
Multiple monopoly routes will not impress the EC.
BA777FO wrote:So you've spoken to the Iberia network planners now and have a crystal ball into the future?!
Oh right, my mistake. IB-UX will roll out the red carpet for Plus Ultra and do their best to help out their competitor, the route planners will give Plus Ultra six months notice of all schedule changes, just to be fair.
BA777FO wrote:Just like Lufthansa would do out of Frankfurt or KLM out of AMS or AF out of CDG?
Plus Ultra has four aircraft. Condor, based in FRA, has 17 long haul aircraft. In PAR, Corsair has 7, Air Carribes 10, XL Airways (until a month ago) 4, Level France 3, French Bee 3. And like I pointed out above, PAR-NYC has nine airlines competing with one and other.
BA777FO wrote:Best break up those monopolies then, huh?
Consumers would benefit greatly from this.
BA777FO wrote:That hasn't stopped Norwegian.
Hows that working out for them, profitability wise?
BealineV953 wrote:Elsewhere you suggest that IAG will reduce frequency and put up prices.
Economic theory says that if a company makes excess profits, competitors will enter the market.
And once a competitor enters the market, IAG will lower prices dramatically, dumping capacity to make sure their competition is short lived.
Jetty wrote:BA777FO wrote:Just like Lufthansa would do out of Frankfurt or KLM out of AMS or AF out of CDG? Best break up those monopolies then, huh? Especially given those airlines share a similar or greater percentage share of seats from their respective hubs as IB and UX will at Madrid.
Apples and oranges. Different rules apply to proposed mergers than to existing companies. So it’s very possible that a certain market concentration doesn’t lead to a break up, but wouldn’t be allowed to exist by means of a merger.
BealineV953 wrote:Jetty wrote:BA777FO wrote:
Not really - this merger will be compared to the likes of Lufthansa at FRA, BA at LHR and KLM at AMS. IB's market share in MAD is no greater than their European counterparts at their respective hubs and therefore besides perhaps at most a few route carveouts I doubt there'll be any objection from the EU Commission.
You apparently don’t know much about EU antitrust laws; comparisons with other airlines are totally irrelevant. The thing that matters is if there is a significant impediment of effective competition due to the merger, and not on an European level but on a local level or even individual routes. That is the test even if there would be no effective competition in some other EU countries.
Anti-competitive behaviour is prohibited by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
EU competition law prohibits two main types of anti-competitive activity, one of which is ‘Abuse of a dominant market position’ (under the Article 102 prohibitions). This prohibits businesses with significant market power unfairly exploiting their strong market positions.
So we can assume that Austrian will be prosecuted for dumping capacity to try and keep out Wizzair and Laudamotion from Vienna? Unfortunately whilst consumer authorities are generally good at preventing mergers that substantially reduce competition, prosecuting companies for capacity dumping is very difficult and thus rare. And that's globally, not just in the EU.
