Icelandair May Buy A 49% Stake In Azores Airlines

While Icelandair and Azores Airlines are from very different islands in terms of climates, they operate similar business models. Both airlines offer passengers the opportunity to fly between North America and mainland Europe with a stop at their hub airports at no additional cost. Both the Azores and Iceland are gorgeous, so this is a fantastic opportunity to visit some pretty awesome places while also scoring a deal on airfare.

While Icelandair’s route network is well developed and the airline is doing well, the same can’t be said for Azores Airlines. Azores Airlines is tiny, but somehow has managed to rack up about 250 million USD in debt, and is on the verge of not being able to pay their employees. For several months the airline has been looking for new investors, as they’re desperately in need of a capital injection.

On the plus side, at least Azores Airlines is generally moving in the right direction at the moment. They historically had A310s in their fleet, which were incredibly fuel inefficient and unreliable, so they had high operating costs and tons of cancelations. The airline is now taking delivery of much more fuel efficient A321 aircraft, which will allow them to lower operating costs and have a more reliable schedule. This should solve many of their problems, though they’re such a small airline, and keeping up with their debt payments is tough.

In Azores’ quest to find an investor, it looks like they have a single company that’s pre-qualified. Specifically, Loftleidir Icelandic, which is a subsidiary of Icelandair Group, has submitted an offer for a 49% stake in Azores Airlines. They’re the only company at this time that has the financial capacity and managerial experience to participate in the sale.

The sale is nowhere close to being complete, though, as the airline still has to go through three more phases, including the submission of a binding proposal, and then an evaluation and negotiation of the proposals.

I’m curious what Icelandair’s logic is in considering this investment. Given that the two airlines operate similar business models, I could see their logic being one of two things:

  • Perhaps Icelandair thinks that Azores’ problem has been their outdated planes, and with some of their own expertise in the market, they think they can help them improve profitability, especially with the Azores being such a hot vacation destination
  • While Icelandair has been successful in Iceland, they’re facing a lot of competition from WOW Air, so maybe they see potential in stationing some of their planes in the Azores and helping them expand their transatlantic network

While I think it’s highly unlikely that this would happen, as an aviation geek I also can’t help but dream of a flight between the Azores and Iceland. It would literally be an ~1,800 mile North-South flight in the middle of the Atlantic. How cool would that be?!

What do you make of Icelandair’s potential investment in Azores Airlines?

Comments

  1. I think the goal is to both operate the airline as a going concern, but more importantly have a lower labour cost AOC available for Loftleidir’s core ACMI business for the short-medium term before selling out at a profit.

  2. Isn’t KEF bursting at the seams? I know that they are expanding the airport, but there’s no way that KEF can keep up with the increasing flights to Iceland. If Icelandair wants to expand, doesn’t this allow a way to do it?

  3. Isn’t Loftleidir Icelandic already managing TACV? They could unite under one group (similar to LH Group) and offer Transatlantic flights together.

  4. The current facility at PDL isn’t really fit for an FI type operation.

    Icelandair, Air Azores, and TACV would give the group a large presence at BOS.

  5. Is it worth the bother of taking on such a basket case? In March, Azores Airlines came 154th out of 156 airlines for punctuality. That’s quite an achievement!
    Their cousins at TAP showed them how to do it better. TAP proudly came 151st out of 156 according to OAG data.

  6. So Icelandair has positioned themselves as a gateway to Europe, especially Northern Europe and especially from smaller markets that can’t support direct flights to more than a handful of major European destinations.

    Perhaps they can position Air Azores as the gateway to Southern Europe and West Africa. I would love to see a YHZ-PDL-DSS trip. It would be so much better than YHZ-YYZ-CDG-DSS, or YHZ-YUL-BRU-DSS. Anything that can make it easier to see my sister, really. 😉

  7. Maybe this, plus the new planes that Azores Airlines has, would help enable an interline agreement with JetBlue. Azores Airlines desperately needs to be able to sell tickets to/from more US cities, and JetBlue is an ideal partner for that. I imagine that it hasn’t happened in the past because of Azores Airlines poor reliability.

  8. Air Azores could also start the same type of business but connecting Europe with Central & Northern South-America. FI serving the North Transatlantic and Air Azores the Mid-South Atlantic!

  9. The key rationale here is that both Iceland and Azores are very strategically located in the middle of the Atlantic. As major parts of the US are within reach of narrow body air crafts, they can potentially offer one stop connections between smaller European and American cites where it’s simply not viable to fly wide-bodies or are off the radar screen of major network carriers that are premium focussed. Both of them share a similar business model and integrating the two hubs in the North and Mid Atlantic could lead to the two entities collectively offering a formidable network coverage in North America with narrow body air crafts and become true disrupters.

  10. I have a gut feeling this is about creating leverage with regards to WOW air, which is an asset Icelandair would probably rather have than Azores Airlines. Azores Airlnies is probably the 2nd option for Icelandair(BATNA). WOW needs a capital injection to sustain its growth and they have been looking for investors. Icelandair could be doing this as a way to get WOW to accept an offer from the quickly instead of shopping around for better offers. If WOW doesn’t soon and makes a decision, Icelandair will invest in Azores and WOW misses the plane so to speak. Far-fetched theory I know, but wouldn’t be surprised if we heard about Icelander taking a stake in WOW.

  11. It would be pretty nice to fly from the US to Europe with a stop in Iceland on the way out and the Azores on the way back.

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