16 APRIL 2018


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Article from BTNews 16 APRIL 2018

COMMENT: IAG and Norwegian

Will the possible takeover of Norwegian by IAG under chief executive Willie Walsh be more successful than BA's controversial merger with Iberia back in 2012, which some people still think was a mistake? (See IAG circles Norwegian in this issue). BTN reported last week on IAG's actual individual airlines’ figures. Would BA have been more profitable over the past six years if left alone? 

Some serious blunders have been made over this period, sort of acknowledged with the reinstatement of BA’s South American routes. It could be argued that a purchase of Norwegian is to thwart a takeover of that airline by Lufthansa Group, or Air France–KLM, or Ryanair. Brexit could come into the equation and it might be Walsh wants to dispose of Iberia and that the Barcelona-based IAG low-cost carrier Level is not working properly and could be incorporated into Norwegian.

Level was part of the response to the low-cost threat by IAG, which realised it had been too slow in reacting to short-haul budget carriers in Europe. IAG bosses insist Level is working, with the airline taking over the BA OpenSkies base at Paris and adding routes. However, it remains debatable in the same way as the merger of BA and Iberia to create IAG in the first place, all of it begging the question of whether this is just another bit of Walsh showmanship. The shareholders seem happy enough with him.

Beyond having his photograph all over this week’s mass coverage of the Norwegian story, the chief executive – who joined BA in 2005 when out of work following an aborted management attempt to takeover Aer Lingus – has remained officially silent. IAG comment has been limited to an official statement with no-one’s name attached.

Some analysts see the development, coming in the same week that BA puts its cut-price ‘Basic’ fares on sale, as being another example of the gradual dumbing-down of the national carrier. There are questions about the size of the IAG investment in Norwegian – only 4.61%. Norwegian said it had no knowledge of it until it saw it reported in the media.

Are facts like these consistent with serious intent? Or are we seeing some IAG sabre-rattling in face of uncertainty about where the market is going? BA was the major carrier at Gatwick and retreated in the face of competition from easyJet. Has it learnt its lesson? The south London airport is rumoured to be looking at ways to expand.

Industry observers quoted by the Reuters news agency noted that while Norwegian had shaken up the market and given other carriers such as Icelandic Wow, Lufthansa’s Eurowings, Level and Primera the confidence to try out low-cost long-haul, its rapid expansion had put it under financial strain. At a time when, unusually, most airlines are raking in cash, Norwegian has built up £2bn in debt with some expensive new aircraft on the way as the fleet expands to nearly 200-strong by next year.

Reuters also reported that Ryanair CEO Michael O’Leary “has often predicted Norwegian’s demise”, while others were still unsure whether long-haul can work without high-paying Business Class passengers up front. “Norwegian is in need of execution and capital, frankly, and maybe IAG can give that, so it definitely on the face of it makes strategic sense for IAG,” one analyst told the agency.

Norwegian founder and chief executive Bjorn Kjos has in the past summed it up. "You will always see airlines come and go," he said. "Mostly you will see them go."

One thing is for sure. The UK wants a strong national flag carrier at times of uncertainty, with Brexit and the world at a crossroads.

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OUR READERS' FINEST WORDS (All times and dates are GMT)

All comments are filtered to exclude any excesses but the Editor does not have to agree with what is being said. 100 words maximum

John O\'Shea, Budapest

Firstly a defensive measure before Ryanair or LH in the guise of Eurowings show an interest and secondly the Long Haul Low Cost out of LGW has always been a BA focus.

michael Imeson, uk

Didn't BA once attempt to react to low-cost European airlines with one of its own called Go? Who recalls what happened to Go!

Michael Davis, Geneva

As with Laker Airways, BA could leave Norwegian to implode all by itself, no airline can support Norwegian's current debt burden and if it were to disappear, like Swissair and Panam before it, in a couple of weeks, no one would notice its absence. So why pay a penny for it Mr Walsh?

David Starkie, United Kingdom

There are serious competition concerns here. The same day that the story broke one of the papers carried a piece on how Norwegian were adversely affecting BA. Shades of Laker Airways and the Freddie Laker saga perhaps?

Malcolm Ginsberg, London

AN AFTERTHOUGHT -- BTN’s main contention regarding a possible takeover of Norwegian is the same as with the BA/Iberia merger. A diversion of resources. IAG HQ was last noted as having 100 (expensive) staff. The offices are now back at Waterside. But what financial and physical effort is required to integrate the Oslo based airline into the setup? Will the results justify the means?