British Airways Buys Stake In Norwegian, Considers Full Takeover

This is huge news, and seemed to come out of left field. IAG has acquired a 4.61% ownership stake in Norwegian, and is considering the possibility of a full takeover of the airline. IAG is the parent company of British Airways, Iberia, Aer Lingus, and LEVEL, and Norwegian has been one of their biggest competitors for the past few years.

Here’s the statement that IAG has issued regarding their investment and a potential takeover:

“International Airlines Group (IAG) notes the recent press speculation that it is considering making an offer for Norwegian Air Shuttle ASA (Norwegian).

IAG considers Norwegian to be an attractive investment and has acquired a 4.61 per cent ownership position in the airline (minority investment).

The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian.

IAG confirms that no such discussions have taken place to date, that it has taken no decision to make an offer at this time and that there is no certainty that any such decision will be made.

A further announcement will be made if appropriate.”

Suffice to say that the implications of this would be massive.

British Airways is the UK’s largest global airline, and they have the most combined slots at Heathrow and Gatwick Airport. Norwegian is an ultra low cost carrier that has increasingly been giving British Airways a run for their money. Norwegian has put downward pressure on British Airways’ yields, and has caused British Airways to launch several routes out of Gatwick Airport to compete.

While I can’t blame IAG for what they’re trying to do here, a takeover like this would be terrible news for consumers, especially given that this is one of the few ultra low cost carriers to operate longhaul flights out of the UK.

Given that no discussions have happened between IAG and Norwegian yet, it remains to be seen what Norwegian’s interest level here is. The airline has a couple of big investors (including the CEO), so they’ll have to be onboard if there’s any chance of a successful full takeover.

While Norwegian has been growing at a fast pace, the airline hasn’t been performing well financially, as they’ve been losing money and also running out of cash to fuel further expansion. Their growth in many ways seems similar to some tech companies, where their focus is on increasing market share rather than profitability.

It remains to be seen what British Airways would want to do with Norwegian — would they essentially operate them alongside LEVEL (their ultra low cost carrier), and if so, would they continue to expand Norwegian, or would they try to curb the expansion? It seems most logical that they’d continue offering ultra longhaul flights with Norwegian, but that they’d move those flights out of the UK, and to other points in Europe instead.

Interesting times, and for sake of consumers I really hope we don’t see a deal here…

What do you make of IAG’s attempted takeover of Norwegian?

Comments

  1. If they bought it, they would kill Level and instead use DY to to fight Skyteam and Star at Euro hubs

  2. What about anti-trust / anti-monopoly regulations? How is it at all ok for airlines to simply buy up all their competitors and consolidate into mega companies? Goodbye to competition. Just look at LH group controlling much of central Europe: Germany, Switzerland, Austria, Belgium. IAG: UK, Ireland, Spain and AF/KLM: France, Netherlands. They hold near-monopolies already on many routes, the EU has been just as lax if not more so than the US in regulating these mergers. Not that I’m a big fan of BA or SK in their strategy of racing to the bottom to ‘match’ the LCC model. I think Finnair and select others focusing more on raising the bar and expanding premium services in Asia & North America is more excited especially for those of us focused on premium travel.

  3. On what basis is British Airways “the UK’s largest airline” ??

    It isn’t. Do your ‘math’, Lucky.

  4. EU regulations have teeth only when it comes to American companies. They are just protectionist masquerading as fair and equal.

  5. “…especially given that this is one of the few ultra low cost carriers to operate longhaul flights out of the UK.”

    Considering that BA is aiming for the ULLC model themselves, they stand to learn a lot from DY, and buying them would complement BA as they move toward their new ULLC strategy.

    /partially sarcastic. maybe.

  6. Hardly “terrible” news.

    Norwegian are hanging on by a thread.

    Better to get out whilst you can than fold and have to fire sale what assets are left.

  7. I think Norwegian would be stupid not to take an offer from IAG if they were to make one.

    The over zealous expansion has left their margins very thin and it means the business is incredibly susceptible to any kind of event that puts downward pressure on the aviation industry, this in combination with the fact that oil won’t stay cheap for ever leaves me thinking they’re on borrowed time.

    They might be big, but they’re certainly not too big to fail, it’s not even like they own a significant percentage of their aircraft that they could sell in a pinch.

  8. This is likely to be the biggest news in UK aviation this year. The consequences of this are far-reaching. As much as I would hate to see if happen, assuming Norwegian’s financial position is as bad as commentators predict it is, their shareholders would be crazy not to accept a takeover offer.
    IAG is also being smart in eliminating their biggest UK-based competitor while presumably getting a huge amount of assets for an affordable price.

    The biggest question for me is in relation to Norwegian’s long-haul operations will they:
    1. Kill it off and convert the 787s to BA mainline; or
    2. Convert the planes to LEVEL/Vueling and maintain the routes; or
    3. Keep Norwegian operating based on its good reputation but use their size and experience to make it more profitable.

    As much as I wish it was option 3 I’m guessing it will be Option 1. Option 2 would likely become option 1 as LEVEL and Vueling have such a poor reputation that hugely growing their fleet wouldn’t be sustainable.

    This is a sad day for London based travellers.

  9. @sophie is BA not the largest??! It’s definitely bigger then EasyJet, in fleet size at least (or what are we lookin at here?)

  10. If IAG takes over Norwegian, I think rather than integrating its long haul operations into LEVEL or Vueling, they might merge LEVEL (probably not Vueling) into Norwegian so they end up with something like what Singapore Airlines has with Scoot.

  11. Why is this bad? More ways to earn and use Avios? Isn’t this site about miles and points. Norwegian has a non-working miles and points program. Being able to earn 3500 Avios (7000 for Emerald) with $99 flights is huge!

  12. Hmmm.
    I actually use Norwegian with reasonable regularity for quick hops back to London from NYC if no award seats available on BA/VS.
    Why?
    1) One way tickets without silly prices. I paid $175 all in recently.
    2) Short notice tickets without silly prices.
    I can bear a short one way 5-6hr flight in coach- what I can’t bear is paying $2000 for that same one way on BA/virgin, even if I am in a better position with any irrops etc.

    I fear that a takeover would not be good for customers in this instance.

  13. Whether its BA or not, if Norwegian’s financials are as bad as you guys say, the situation was going to change anyway. Shows that low cost airlines should try to establish some kind of profitable business model rather than going way too low on fares. There is a lot of room between $2,000 each way for coach on British Airways / Virgin and $200 on Norwegian.

  14. Actually… It could make sense.

    BA could stop their downward spiral of cutting bits off their service. And Level is a failure. So buying Norwegian, using them from the LGW base and keeping BA flights at LHR would make sense. It gives them a chance to put some premium back into BA at LHR, whilst targetting the low cost market from LGW.

    They could even merge them with Vueling for intra-Europe LC flights.

  15. Nothing last’s to long aviation, Norwegian is an excellent product and in many ways they liberated the skies from the European Airline Mafia, BA ,LH and AF. Sad for consumer’s again. TRAVEL while you can.

  16. This is huge news but some change to the status quo is inevitable. According to a Leeham analysis last month Norwegian lost 229mil USD in the first two months of this year, which is clearly not sustainable. Either someone takes them over, or they go bust, or possibly just a massive retrenchment, but the situation was not going to remain as-is.

    I would be surprised if the competition regulators allow this – at the very least BA would have to give Hk a bunch of slots at Gatwick I assume. The cost/labour structure of Norwegian might also be a motivation for IAG to keep it separate rather than roll the widebodies into the BA fleet.

  17. Once again, what makes Norwegian *ultra* low cost?
    I concede that the lines are blurred, but if anything, Norwegian is a classic by-the-book LCC with a standard hand baggage policy, loyalty program, which flies into primary airports, offers connecting flights, BYOD IFE and even free wi-fi. How is this any different from the bulk of European legacies nowadays?

    When you say ULCC, I think Spirit and the likes. Spirit and Norwegian, however, that’s two completely different worlds.

  18. The “sad day for UK travellers” was when Norwegian came along, cherry picked routes and deliberately undercut the competition using a critical mass for future profit strategy.

    If hasn’t worked, nor was it ever going to do.

    All it has done is lulled some of the travelling public – and disappointingly, some prolific online bloggers – into the misconception that long haul travel is possible for $99 and ya boo to the rotten legacies who have stripped down their products to compete.

    Norwegian is a rotten company, built on rotten business ethics, dubious economics and wildly undercut fares to generate lift and profit. It’s failed.

  19. Well, I think we’re going to see fewer sub $1k RT Transatlantic fares. I honestly couldn’t see sub $500 flights as sustainable.

    One upside is that this move might increase B6’s case for transatlantic flights with the long range A321neo’s with Mint. I’d MUCH rather fly with in that plane than some high density 737’s Norwegian’s been using for obscure airports. I’d love to see them put some heat on J prices like they’ve done with their transcon routes.

  20. If IAG merge level and Vueling into Norwegian and reposition BA as a premium airline then it’s not a bad move for consumers

    I am yet convinc d that ULC LH is a viable long term model, but it has some advantages and the IAG balance sheet will help

  21. The sooner the ULCC cancer can be cut away from aviation the better. If the only way you can travel to Europe is on a ULCC fare, stay the F home.

  22. I hope not Norwegian provides much better service then BA or a lot better then Level
    And offer one-way pricing rebooking.

  23. It’s a pity but somewhat inevitable that the big boys will try to gobble off the competition. Whatever legitimate criticisms of Norwegian there might be, it remains true that travelers have been the beneficiaries of the (forced) lower fares offered by the majors ( and some people conveniently forget that had it not been for the likes of Freddie Laker , fares would be 2X, 3X, 5X what they are today).

Leave a Reply

Your email address will not be published. Required fields are marked *