Bloomberg News

British Airways Parent IAG Favors More Mergers, CEO Walsh Says

April 11, 2013

IAG SA (IAG) Chief Executive Officer Willie Walsh, who led the company’s creation via a merger of British Airways and Spain’s Iberia, said he favors a further bout of consolidation to boost revenue while paring costs.

Airline alliances like Oneworld, of which IAG is a leader, exist only because of restrictions on mergers, for which the three main global groupings are a “poor substitute,” Walsh said today at the CAPA aviation conference in Powerscourt, Ireland.

“The alliance gives you good revenue synergies, but consolidation gives you cost and revenue synergies,” Walsh said, adding that rules limiting foreign ownership are “ridiculous.”

International Consolidated Airlines Group SA was formed through a combination of BA and Iberia in 2011 and has since bought BMI from Deutsche Lufthansa AG (LHA), folding the carrier into its U.K. business to add operating slots at London’s Heathrow airport while paring the overall headcount. Walsh is also bidding for full control of Barcelona-based Vueling Airlines SA. (VLG)

The CEO said that in addition to limits on ownership for IAG beyond the European Union, the bloc’s own rules that assess airline agreements and mergers based on the competitive positions of carriers at specific hubs are also a frustration.

‘Mistake’

“The big concern I would have with competition policy in the EU is it is looking at the European market, rather than at a global basis,” he said. “That is a huge mistake.”

The Oneworld alliance has taken a more cautious approach to expansion than its rivals and numbers 12 full members, with three other carriers, including Qatar Airways Ltd. and Malaysian Airline System Bhd., in the process of joining. The Star group, which includes Lufthansa, has 27 full members.

BA acted as sponsor for the recruitment of Qatar Air, which marked the first instance of one a major Gulf carriers joining a global alliance, and Walsh said his European rivals are catching on, citing Air France-KLM Group (AF)’s code-share deal with Etihad Airways PJSC of Abu Dhabi and their talks about a deeper accord.

“That for them is like talking to the devil,” the 51-year- old Irishman said. “It’s a true reflection of the change our industry is going through.”

Walsh said he’s supportive of the Gulf-carrier boom and the role played by governments there in fostering growth, something carriers including Air France-KLM and Germany’s Lufthansa had attacked in the past as amounting to state support.

“Rather than inhibit their development they have facilitated their development,” the CEO said. “To me, that is how our industry needs to develop.” Walsh has previously spoken out against U.K. government restrictions on growth at Heathrow.

Finnair Oyj (FIA1S), also a Oneworld member, is seeking bilateral agreements outside the group, Allister Paterson, senior vice president, commercial, said at the CAPA conference. Joint ventures of the kind that BA and Iberia have with American Airlines also offer broader benefits than alliances, allowing timetable coordination and the sharing of costs and revenue.

To contact the reporter on this story: Robert Wall in Powerscourt, Ireland, via rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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