EasyJet’s leisure business would be a prized by BA
A takeover of budget airline EasyJet by British Airways owner International Consolidated Airlines would make “perfect sense” as business travel shrinks, says a market analyst.
IAG is said to be casting an eye over UK-based EasyJet and TAP, Portugal’s flag carrier, which the Lisbon government is set to sell-off.
EasyJet shares were up 20p (6.09%) to 348.5p in the first hour of trading on the stock market. It is expected to report losses of £180 million this financial year and has cut capacity for the winter. Its market value – just £2.64 billion following this morning’s rise – has put it in the sights of predators.
IAG, formed more than a decade ago by the merger of British Airways and Iberia, also includes the former Irish state-owned carrier Aer Lingus and Vueling, the Spanish holiday airline. It recently returned to profitability and is forecasting operating earnings for 2022 of €1.1 billion.
At last week’s third quarter results, Luis Gallego, chief executive, said: “We are a platform for consolidation. We will only do what makes sense but we see there are opportunities to be stronger. We are a group that wants to consolidate the industry.”
Michael O’Leary, the chief executive of Ryanair, has predicted a consolidation of the European sector along US lines with three large carriers and one low-cost operator. He says Europe will be dominated by his discount operation up against IAG, Lufthansa and Air France-KLM and that EasyJet’s services could be split up among the bigger airlines.
AJ Bell investment director Russ Mould, said EasyJet beiing takeover target for International Consolidated Airlines makes “perfect sense,” but believes IAG could face competition from a rival discounter.
He said: “The pandemic has created concerns about the future of business travel, with companies globally realising they don’t need to hold so many meetings in different locations. It’s far easier, cheaper and more environmentally friendly to hold many conversations over Teams or Zoom than get on a plane.
“Therefore, companies like International Consolidated Airlines need to rethink their future sources of revenue as they may find that business travel doesn’t match pre-Covid levels.
“Owning EasyJet would significantly boost International Consolidated Airlines’ position in the leisure market and give it access to many prized airport landing slot.
“The key challenge is funding such a deal. International Consolidated Airlines is already ladened with large debts and shareholders may prefer it to pay down these borrowings rather than spend billions on buying another airline such as EasyJet.
“Shares in EasyJet earlier this month traded at their lowest levels since 2011, which is the market’s way of saying it believes the company’s recovery from the pandemic will be very slow.”
Mr Mould notes that Wizz Air has been linked as a potential suitor for EasyJet in the past and there is also logic behind a tie-up of those two companies.
“Eastern Europe-focused Wizz Air could strengthen its position in Western Europe by owning EasyJet. Additional airlines may also find a good rationale for owning EasyJet. This suggests International Consolidated Airlines will face competition from other parties should it decide to make a move on the low-cost airline operator.”