British Airways and Iberia in merger talks

British Airways (BA) and Spanish airline, Iberia, have confirmed they are in merger talks. Should a deal go ahead, it would create one of Europe’s largest airlines.

Following the news, shares in BA rose by 8%

A merger of the two airlines would produce a carrier that is dominant on the North and South Atlantic routes. Traditionally, BA has been strong on routes from London’s Heathrow to the US while Iberia has strong links with South America.

In 1999, BA acquired a 9% stake in Iberia and recently increased its stake to 13.2% while
Iberia recently bought a 2.99% stake in BA.

BA’s chief executive, Willie Walsh, said the proposed merger would help the airlines during the challenging economic environment. Mr Walsh added that the aviation landscape is changing and airline consolidation is long overdue.

BA and Iberia are both members of the Oneworld alliance, a service that brings together ten of the world’s largest airlines, other members include American Airlines, Qantas and Cathay Pacific.

Soaring oil and fuel costs are having a devastating affect on the airline industry currently with many announcing cutbacks and job losses. ATA Airlines, Aloha Airgroup, Skybus Airlines, EOS and Maxjet have all ceased trading as a result.

BA also recently announced cutbacks as a result of soaring fuel prices. Yesterday, the airline said it is to ground 20% of short-haul flights with the majority being at London’s Gatwick airport.

BA is due to announce its first quarter results at the end of the week. Two weeks ago, Martin Broughton, BA’s chairman, warned that the airline would struggle to make a profit due to sky-high oil prices.

Furthermore, the airline will have to factor in some extra costs from the transition to the new £4.3 billion Terminal 5 at London’s Heathrow airport. The move led to many difficulties including the departure of Gareth Kirkwood, director of operations and David Noyes, the director of customer services.

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