Willie Walsh, chief executive of International Consolidated Airlines, the company formed by the merger of British Airways and Iberia, has indicated the group would consider adding a low cost discount airline. At the ICBI Aircraft Finance and Commercial Aviation conference in Geneva, Walsh said he saw “no reason it can’t happen.”
Walsh has made no secret of his desire to seek new merger partners for the group and is indeed proactively seeking them. Nonetheless, the mainstream press has been excitedly predicting which airlines Walsh would target. Air Berlin, already a member of the Oneworld alliance, has been touted as a possible, as has Spanish carrier Vueling Airlines, which is already 46% owned by Iberia. But I have to say that the best buy would be S7 of Russia. S7 as you may know is a member of Oneworld, sponsored to enter the alliance by BA. S7 is a low cost doing well in a tough market but Russia is key to the future of aviation. Traffic is returning to Soviet levels even though the Russian economy was crushed in 2007/2008. With both oil and natural gas futures rising rapidly, the Russian market is set to be a player once again. IAG would do very well indeed to look no further than S7 and expand into Europe further – there is value to be shown here!
The truth is that political problems and war in oil producing countries will take the bite out of IAG’s ability to pounce on a low-cost airline outright. Oil prices will force many airlines well into the red during 2011 and this will help the IAG march too. As I said in December 2010, 2010 profits will pay for 2011 losses in many cases. On the flip side though there are airlines out there with wonderful synergies that could show terrific value, none more so than Air Malta that has a wonderful strategic position in the centre of the Mediterranean Sea. For so long an integral part of the British Empire, the population are English speaking and would probably welcome an offer from British Airways, which should tick the political boxes in Valletta. The move from the Iberia perspective is a good one too as Air Malta has a raft of routes into Spanish territory.