BA owner swoops on bud­get ri­val

IAG tells in­vestors it wants to bring transat­lantic Nor­we­gian car­rier into the fold as it builds 4.6pc stake

The Daily Telegraph - Business - - Front Page - By Alan Tovey

BRITISH AIRWAYS owner IAG is lin­ing up a takeover of low-cost air­line Nor­we­gian Air Shut­tle, spark­ing con­cern over its dom­i­nance of transat­lantic routes and land­ing slots at Gatwick.

IAG re­vealed it had built a 4.6pc stake in Nor­we­gian as a plat­form from which to launch a full of­fer for the firm.

Shares in Nor­we­gian, which was val­ued at around £630m be­fore the ma­noeu­vre by IAG chief Wil­lie Walsh was dis­closed, took off to rise al­most 40pc be­fore trad­ing in the com­pany was halted on the Oslo stock ex­change.

IAG told in­vestors it “in­tended to es­tab­lish a po­si­tion from which to ini­ti­ate dis­cus­sions with Nor­we­gian, in­clud­ing the pos­si­bil­ity of a full of­fer”.

“No such dis­cus­sions have taken place to date, [and] no de­ci­sion has been taken to make an of­fer at this time and there is no cer­tainty that any such de­ci­sion will be made,” it added. In­clud­ing Nor­we­gian’s £2bn debt pile, an­a­lysts sug­gested IAG could pay as much as £3bn for con­trol of the car­rier, which has pi­o­neered no-frills long haul flights. A one-way ticket from Gatwick to New York can cost as lit­tle as £99.

Mr Walsh’s plan to bring the air­line into the IAG fold, which as well as BA in­cludes the Span­ish flag car­rier Ibe­ria, Aer Lin­gus and Vuel­ing, is likely to draw fire from ri­vals and reg­u­la­tors, how­ever. John Grant, of avi­a­tion data busi­ness OAG, said he would ex­pect to see IAG have to make con­ces­sions to win ap­proval. IAG is the sixth-largest air­line in the world and has al­most 550 air­craft across its brands, which are made up of both “legacy” full-ser­vice air­lines and bud­get car­ri­ers.

“Whether it is giv­ing up slots at air­ports such as Gatwick where Nor­we­gian and BA are big, or invit­ing others to get into some of their routes, some­thing would have to be of­fered,” he said.

The two op­er­a­tors du­pli­cate sev­eral routes, which could be ra­tio­nalised. “It seems IAG’s strat­egy has been ‘fol­low Nor­we­gian’ when it comes to ex­pan­sion out of Gatwick,” Mr Grant added.

How­ever, at EU level reg­u­la­tors have been gen­er­ally sup­port­ive of air­line con­sol­i­da­tion, ac­cord­ing to Liberum an­a­lyst Gerald Khoo, with larger air­lines be­ing more re­silient than smaller ones, which have suf­fered a wave of re­cent high-pro­file fail­ures in­clud­ing Al Italia and Monarch. Last year IAG had rev­enues of €22.9bn (£20.1bn) and pre-tax prof­its of €2.4bn, gen­er­ated from the 105m pas­sen­gers it car­ried.

Nor­we­gian is much smaller, with a fleet of about 150 jets, and only es­tab­lished it­self as an in­ter­na­tional player about 15 years ago, though has ex­panded rapidly since.

In 2012 it set up a Gatwick base on its way to be­com­ing the sixth-largest low­cost air­line in the world with an ex­ten­sive Euro­pean net­work. A year later it started long-haul flights, serv­ing South Amer­ica, South Africa and Asia.

Last year it be­gan its chal­lenge to the

lu­cra­tive UK-US transat­lantic mar­ket, of­fer­ing bar­gain flights on routes dom­i­nated by tra­di­tional air­lines such as BA.

In 2017, Nor­we­gian had rev­enues of 31bn Nor­we­gian krone (£2.8bn) and made a 298m krone loss on the 33m pas­sen­gers it flew.

IAG’s move on Nor­we­gian shows that the larger com­pany is all too aware of the chal­lenge it poses in the in­creas­ingly cut-throat and low-mar­gin air travel in­dus­try, which has suf­fered a rash of col­lapses re­cently as costs con­tinue to rise.

“This shows IAG’s grow­ing recog­ni­tion that Nor­we­gian is be­com­ing a vast air­line with a vast route net­work,” said in­de­pen­dent avi­a­tion an­a­lyst Alex Macheras, adding that IAG launched its own bud­get air­line Level to take on Nor­we­gian di­rectly.

“How­ever, just be­cause Nor­we­gian has a lot of flights does not mean it is prof­itable – its fi­nan­cial re­sults are not the best,” Mr Macheras added.

IAG may have cho­sen to swoop now pre­cisely be­cause of the fi­nan­cial strain Nor­we­gian is un­der, hav­ing launched a 1.3bn krone cash call last month. The tar­get air­line is also buy­ing new air­craft at a high rate, with more than 200 on or­der.

Michael O’Leary, chief ex­ec­u­tive of bud­get car­rier Ryanair, Europe’s largest air­line, has been a harsh critic of Nor­we­gian, pre­dict­ing it will fail.

Speak­ing in the au­tumn, the out­spo­ken Ryanair boss said Nor­we­gian had “huge air­craft or­ders it doesn’t have the cash to pay for” and said it was an “open se­cret” in the in­dus­try it was in trou­ble.

At the time Nor­we­gian dis­missed the claims as “non­sense” say­ing it had been prof­itable for a decade.

The car­rier called IAG’s stake­build­ing a “demon­stra­tion of the sus­tain­abil­ity and po­ten­tial of our busi­ness model and global growth”.

Wil­lie Walsh, the IAG chief, is lin­ing up a takeover of low-cost air­line Nor­we­gian af­ter it re­vealed it had built 4.6pc stake

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