After more than a year of merger talks, the two struggling carriers hope pooling their resources will help them survive a turbulent time for air travel.
But will the proposed $7 billion merger diminish competition and create higher fares for passengers?
Under the agreement, the two carriers would continue as individual brands, but operate under one holding company with British Airways taking the majority 55 percent stake and Iberia taking the remaining 45 percent. Officials hope the deal will be approved by regulators and shareholders in 2010.
Ryanair CEO Michael O’Leary compared the deal to two drunks trying to hold each other up as they stumbled home. “All you get when you put two high-fare, loss-making airlines together is even higher fares and even bigger losses,” he said in an interview with CNBC.
British Airways CEO Willie Walsh was quick to dismiss the claims that the merger would have any negative effects on prices or the quality of service.
With BA and Iberia teaming up, the new global carrier will combine Iberia’s strength in routes to South America, Latin America and Africa with BA’s services to the U.S. and Asia. Experts have predicted that the merger will generate a combined $597 million in annual synergies, which is comparable to the amount that each is expected to lose this year.
BA and Iberia are also in talks to hook American Airlines in on the revenue sharing in a deal that would allow them to fix prices on trans-Atlantic flights.
The talks between BA, Iberia and American, which competitors have said would create a dangerous “monster monopoly,” are still subject to approval by U.S. and European regulators.
By Dan Bence for PeterGreenberg.com.
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