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International Airlines Group: The Making of Europe's Airline Consolidation Champion
I. Introduction & Episode Roadmap
On a grey January morning in 2011, something unprecedented happened in European aviation. The flag carriers of two former imperial powers—Britain and Spain—surrendered their independence to create a new kind of company. Not a merger in the traditional sense, where one airline absorbs another's identity, but something more ambitious: a holding structure designed from the start to acquire more airlines while letting each brand retain its soul.
International Consolidated Airlines Group S.A., trading as International Airlines Group and usually shortened to IAG, is a British-Spanish multinational airline holding company with its registered office in Madrid, Spain, and its corporate headquarters in London, England. It was formed in January 2011 after a merger agreement between British Airways and Iberia, the flag carriers of the United Kingdom and Spain respectively.
Today, IAG is one of the world's largest airline groups with 548 aircraft flying to 268 destinations and carrying more than 100 million passengers each year. It is the third largest group in Europe and the sixth largest in the world, based on revenue. IAG is the parent company of British Airways, Iberia, Vueling, Aer Lingus, LEVEL, IAG Loyalty and IAG Cargo.
The central question of this story is deceptively simple: How did two struggling European flag carriers merge to create a consolidation machine that now dominates European transatlantic aviation? The answer involves regulatory chess games across multiple continents, billion-euro acquisition battles, near-death experiences during global crises, and the strategic vision of executives who understood that in airlines, scale matters—but brand identity matters even more.
This is a story about consolidation as survival strategy, about the Byzantine complexity of cross-border airline M&A, and about the delicate art of extracting synergies while preserving the distinctive character of brands that customers love. It's also a cautionary tale about regulatory limits and the deals that got away.
II. British Airways: From Empire Airways to Privatization Champion (1919–2000)
The Birth of British Aviation
Long before British Airways existed as we know it today, Britain's skies were carved up among pioneers racing to connect a far-flung empire. The story begins with a remarkable claim to fame that still resonates a century later.
The lineage is genuinely ancient by aviation standards. Multiple small operators merged, competed, and consolidated through the interwar years, eventually forming the backbone of what would become the UK's national carrier. On 31 March 1924, Daimler Airway joined with three other pioneer airlines—Handley Page Transport (established in 1919), Instone Air Line (1919), and British Marine Air Navigation Co Ltd (1923)—to form Imperial Airways. Imperial developed routes throughout the British Empire to India, some parts of Africa and later to Canberra, Australia.
Meanwhile, a number of smaller UK air transport companies had begun operating, and by 1935 many of these had merged to form the privately owned British Airways Ltd. Following a government review, Imperial Airways and British Airways were nationalised in November 1939 to form the British Overseas Airways Corporation (BOAC).
The Nationalized Era: BOAC and BEA
Post-war Britain operated its aviation through a dual structure that would persist for decades. BOAC continued to operate the majority of long-haul services in Britain, other than routes to South America; these were flown by British South American Airways, which was merged back into BOAC in 1949. Continental European and domestic flights were handled by British European Airways (BEA), which took over scheduled services from independent carriers.
This was the era of British aviation prestige—and occasionally, tragedy and triumph in equal measure. The Comet disasters of the early 1950s were followed by the glory days of Concorde, which became perhaps the ultimate symbol of British Airways' ambitions to represent something more than just transportation.
The 1974 Merger and Path to Privatization
In 1972 a British Airways Board was established by the Government of the United Kingdom to manage the two nationalised airline corporations, British Overseas Airways Corporation and British European Airways, and two regional airlines, Cambrian Airways and Northeast Airlines. On 31 March 1974, all four companies were merged to form British Airways.
The merged carrier inherited a jumble of aircraft types, labor agreements, and corporate cultures. Throughout the late 1970s, it remained a typical state-owned enterprise—bloated, unprofitable, and seemingly incapable of competing with more nimble private carriers.
Everything changed in 1981. The airline was instructed to prepare for privatisation by the Thatcher government. Sir John King, later Lord King, was appointed chairman, charged with bringing the airline back into profitability. While many other large airlines struggled, King was credited with transforming British Airways into one of the most profitable air carriers in the world.
King's transformation was ruthless. He slashed staff, modernized the fleet, and launched aggressive marketing campaigns. The "World's Favourite Airline" slogan became famous worldwide. By the time the government was ready to sell, BA looked nothing like the bureaucratic state enterprise it had been just years earlier.
The Privatization Moment (KEY INFLECTION POINT #1)
1987, the year of "Big Bang", "Wall Street" and BA's privatisation. Nearly ten years after the UK Government first officially announced plans to sell a stake in BA in 1979, the airline was fully privatised on 11 February 1987.
The flag carrier was privatised and floated on the London Stock Exchange in February 1987 by the Thatcher government, the initial share offering was nine times oversubscribed. The privatisation of British Airways was regarded as very successful by industry observers, perhaps the most successful of a series of companies divested by the state in this era.
The timing proved fortuitous. British Airways' lure had to do with the fact that the flag carrier had accumulated about US$580 million in pretax profits in the previous two years and had one of the world's premier route structures. Another factor that made the public sale successful was a growing British interest in the stock market. Following the sale of British Gas, thanks to another successful advertising campaign called "Tell Sid," the sale of the airline meant that almost a third of Britain's state-owned industrial sector had been sold into private ownership.
Following privatisation, British Airways entered a period of rapid growth, leading to the use of the slogan "The World's Favourite Airline", and dominated its domestic rivals during the early 1990s.
Four months later, in July 1987, BA announced the controversial takeover of Britain's "second" airline, British Caledonian. This acquisition pattern—using privatization momentum to acquire competitors—would later become the IAG playbook.
So what for investors: The BA privatization demonstrated that state-owned carriers could be transformed into competitive, profitable enterprises given the right leadership and market conditions. King's turnaround playbook—cut costs ruthlessly, invest in brand, pursue acquisitions—established templates that IAG's architects would later apply across multiple airlines.
III. Iberia: Spain's Flag Carrier and Latin American Gateway
A Complicated Birth
Iberia's origins tell a very different story from British Airways—one shaped by Spain's turbulent 20th-century history. Iberia Líneas Aéreas de España, commonly known as Iberia, is the flag carrier airline of Spain, founded on 28 June 1927 as Iberia, Compañía Aérea de Transportes with initial capital from Spanish and German investors.
Initially named Iberia, Compañía Aérea de Transportes, the company was founded with an investment of 1.1 million pesetas in June 1927. Operations commenced six months later with three Rohrbach Roland aircraft. As soon as 1928, however, the military dictatorship of Miguel Primo de Rivera decided that aviation companies were public utilities and brought most of them under state control. While the brand 'Iberia' was still registered, the airline merged with four other companies.
The Spanish Civil War brought another transformation. The airline was rebranded as Iberia when operations began in 1937 in support of the nationalist effort during the Civil War. At first, it flew six Junker Ju 52 provided by Deutsche Luft Hansa. In 1940, one year after the first international service to Lisbon, the Spanish government gave Iberia the monopoly on the country's air traffic.
The Franco regime then proceeded to nationalize the carrier in 1944, and it became part of the Instituto Nacional de Industria. The airline was finally privatized in 2001.
Latin America: The Crown Jewel
What made Iberia strategically valuable was something no other major European carrier possessed: unmatched access to Latin America. The cultural and linguistic ties between Spain and its former colonies created natural commercial routes.
The purchase of seven DC-3 and three DC-4 was finalised, to expand the network in Europe and accomplish the company's first transatlantic flight. This was achieved in 1946, Iberia was the first airline to fly between Europe and South America after World War II, using a Douglas DC-4 to operate flights between Madrid and Buenos Aires. This flight was the first of an expansion of flights between Latin America and Europe through Spain carried out by the company, with destinations such as San Juan de Puerto Rico, Caracas, Ciudad de México and La Habana.
During the 1970s, Iberia expanded its routes to Latin America with new Boeing 747s and Douglas DC-10s and was by 1975 flying to nearly all South and Central American capitals.
In the 1990s, Iberia pursued an aggressive strategy to dominate this market through ownership stakes in Latin American carriers. In June 1990 the company led a consortium to buy Aerolíneas Argentinas for an agreed $2 billion for 85% stake and the following year bought 45% stake in Viasa for $145 million.
These investments proved costly—The truth is that during the period that Aerolíneas Argentinas was owned by Iberia (1990–1995), the Spanish airline allocated more than 1,200 million dollars to the Argentine flag carrier and kept the airline operating despite the poor results.
Financial Struggles and the Road to Merger
By the 2000s, Iberia faced mounting challenges. The Latin American investments had drained resources, low-cost carriers like Ryanair and Vueling were eating into short-haul markets, and the 2008 financial crisis hit Spain's economy particularly hard.
The cross-shareholding relationship with British Airways began before the formal merger. The two carriers had been exploring partnerships for years, recognizing their complementary strengths: BA's dominance in North America and Asia, Iberia's unmatched position in South America.
So what for investors: Iberia's Latin American network represented assets that couldn't be replicated. When IAG was eventually formed, this network would prove crucial for justifying the merger and creating a genuine transatlantic powerhouse serving both North and South America from European hubs.
IV. The Consolidation Imperative: Why Merge? (2000s Context)
European Airline Consolidation Wave
The early 2000s transformed European aviation from a collection of national flag carriers into an arena of consolidation battles. British Airways found itself increasingly isolated as competitors joined forces.
Air France and KLM completed their merger in 2004, creating Europe's largest airline group. Lufthansa systematically built its own empire, acquiring SWISS International Air Lines and eventually Brussels Airlines. Everywhere BA looked, the competition was getting bigger.
The economics were compelling. Airline operations have significant fixed costs—maintaining hubs, technology systems, and global sales forces—that don't scale linearly with size. A larger group could negotiate better deals with aircraft manufacturers, spread technology investments across more passengers, and offer more comprehensive networks that corporate travel buyers valued.
The Failed 2007 Attempt
British Airways had tried before. In 2007, BA explored acquiring Iberia, but the deal fell apart when Spanish financial interests refused to sell to a foreign buyer. The lesson was clear: any successful merger would need to preserve Spanish pride and control.
Strategic Rationale
The eventual merger logic centered on network complementarity. BA's strength was North America and Asia; Iberia's was South America. At the time of the merger discussions, BA flew to only three destinations in South America. The combined network would span the Americas in a way neither carrier could achieve alone.
Both airlines faced common threats from low-cost carriers. Ryanair and easyJet were stealing short-haul passengers throughout Europe. A combined entity could respond with greater resources—and perhaps by acquiring low-cost carriers of its own.
The Oneworld alliance, which both airlines had helped found, provided operational integration experience. Joint ventures with American Airlines demonstrated how revenue sharing could work across the Atlantic. The question was whether formal corporate combination could extract additional value.
So what for investors: The strategic logic of BA-Iberia was sound, but timing mattered enormously. Merging during the global financial crisis when Iberia was hemorrhaging money created risks that would take years to resolve. The decision illustrates how competitive pressure can force companies into deals at suboptimal moments.
V. The IAG Formation: Creating Europe's Consolidation Platform (2009–2011)
The Deal Structure
On a November day in 2009, two of Europe's most storied airlines announced they would become one company—sort of. British Airways and Iberia signed a preliminary merger agreement in November 2009. In April 2010, they signed a full merger agreement, with an intended completion date of late 2010, subject to securing the necessary regulatory approvals. The merger between British Airways and Iberia was completed on 21 January 2011, and shares in the new holding company IAG began trading in London and Madrid on 24 January.
British Airways shareholders were given 55% of the shares in the new company. The split reflected BA's larger size and profitability at the time—though Iberia's subsequent losses would test that calculation.
The Corporate Structure Innovation
IAG's structure was genuinely novel for the airline industry. IAG is incorporated as a Sociedad Anónima in Spain, where the company board meetings are held, and is domiciled in Spain for tax purposes. IAG has a primary listing on the London Stock Exchange and has been a FTSE 100 constituent since 24 January 2011. It has secondary listings on the Madrid, Barcelona, Bilbao and Valencia stock exchanges, and has been a constituent of the IBEX 35 index since 1 April 2011.
This structure served multiple purposes. Spanish domicile satisfied political concerns in Madrid. London listing provided access to deeper capital markets. Dual regulatory exposure—while complex—also created flexibility for different operating environments.
Leadership and Vision
The architect of IAG was Willie Walsh, one of aviation's most colorful and combative executives. William Matthew Walsh (born 25 October 1961) is an Irish airline executive. Until 2020, he was CEO of International Airlines Group, and had previously been CEO of Aer Lingus and British Airways. Walsh was born in Dublin, Ireland. He attended his local secondary school Ardscoil Rís. At age 17 he became a pilot at Irish flag carrier Aer Lingus, joining as a cadet in 1979. He acquired a master's degree in management and business administration from Trinity College, Dublin, during his pilot years, while advancing to become a Boeing 737 captain.
Walsh's background was remarkable—a working pilot who rose through union ranks before becoming management, only to earn a reputation as one of aviation's toughest cost-cutters. Walsh made his name standing up to unions and cutting costs first at Ireland's Aer Lingus, where he became CEO in 2001, and then at British Airways, earning him the nickname Slasher Walsh in an industry he once characterized as a "fight for survival". It was at Aer Lingus where he formed the template for his strategy, benefiting from a front-row seat to the rapid expansion of budget rival Ryanair. Walsh was much quicker than rival European flag carriers Air France-KLM and Lufthansa to embrace budget flying.
Walsh became CEO of British Airways in October 2005. Walsh oversaw the merger of British Airways and Iberia forming a new holding company International Airlines Group (IAG) in January 2011.
Walsh's vision for IAG was expansive from day one. He told media on the company's stock exchange listing: "British Airways and Iberia are the first two airlines in IAG but they won't be the last. Our goal is for more airlines—but, importantly, the right airlines—to join the group."
Regulatory and Transatlantic Alliance
A crucial component came together simultaneously. IAG and its joint business partners have market share of 45% on the North Atlantic market and it represents 31% of IAG's total capacity by ASK. Alongside our partners we serve North America 150 times each day to 34 destinations, 30% more than the nearest competitor.
The joint venture with American Airlines created a transatlantic powerhouse that could coordinate pricing, scheduling, and capacity in ways that made the combined networks more valuable than their sum.
Synergy Expectations
The financial case rested on projected synergies of €400 million by the fifth year of trading, split roughly 60% from cost savings (IT, aircraft maintenance, resource optimization) and 40% from revenue enhancement (coordinated sales, network optimization, expanded code sharing).
Willie Walsh left BA in early 2011 to take up the role of Chief Executive of IAG, formed as a "brand agnostic" parent of BA and Iberia, something Willie has always regarded as unique and his creation.
So what for investors: IAG's structure represented a genuine innovation—proving that multinational airline consolidation could work without destroying brand value. The "brand agnostic" parent model would become the template for every subsequent acquisition, allowing IAG to acquire airlines with strong identities without forcing integration into a single brand.
VI. The Iberia Crisis and Turnaround (2012–2014)
The Depth of the Problem
Within a year of IAG's formation, the celebratory mood had soured dramatically. In 2012, it was reported that British Airways' profits had been wiped out by Iberia's losses, and that the Spanish airline was in a fight for its survival. By 2013, Iberia had lost a billion euros, requiring IAG CEO Willie Walsh to defend the IAG merger.
The timing couldn't have been worse. Spain's economy had collapsed following the 2008 financial crisis, unemployment soared past 25%, and domestic travel demand evaporated. Meanwhile, low-cost carriers—particularly Vueling and Ryanair—continued stealing market share on short-haul routes.
After further losses, IAG's balance sheet was in deep deficit as Iberia fought low-cost competition and a recession, and Walsh admitted that British Airways should perhaps have postponed the merger, saying, "If I'd known the Spanish economy was going to deteriorate to the scale that it did, we may have delayed the decision but ultimately I believe the merger is the right thing".
The Restructuring Playbook
Walsh applied the same medicine at Iberia that he'd used at Aer Lingus and British Airways: aggressive cost cuts, fleet renewal, and bruising negotiations with unions. The restructuring included thousands of job cuts and changes to working conditions that sparked protests at Madrid airport.
A key innovation was the creation of Iberia Express. On 6 October 2011, IAG created Iberia Express, a new low-cost airline to operate short- and medium-haul routes from IAG's Madrid hub and provide transfer feed onto Iberia's longhaul network.
The strategy was clever: rather than trying to make Iberia's mainline operation compete with Ryanair on cost, IAG created a separate low-cost carrier to protect the hub while letting mainline Iberia focus on premium long-haul routes where its network strength mattered most.
Turnaround Achieved
From 2014 onwards, Iberia returned to profitability, showing Walsh's predictions had been justified.
The transformation was led operationally by Luis Gallego, who would later succeed Walsh as IAG CEO. At Iberia, he was known for having led the transformation and modernization process of the airline. In his first year as CEO, he cut the airline's losses by half, while in his second year in office, he was touted as being able to make Iberia profitable after six years of operating losses. He reached labour agreements with all Iberia's staff groups to reduce labour costs and increase employees' productivity. Since then, Iberia's quality and recommendation indexes of the airline's customers reached a record level and it became one of the world's most punctual airlines.
So what for investors: The Iberia crisis validated both the risks and potential of IAG's model. A weaker holding company might have failed entirely; IAG had the financial resources to fund the restructuring and the management discipline to execute it. The episode demonstrated that airline turnarounds require years, not quarters, and that investors must look through cyclical losses to evaluate underlying strategic positioning.
VII. The Acquisition Spree: Building the Portfolio (2011–2017)
BMI Acquisition (2012) – The Heathrow Slot Play
Barely a year after IAG's formation, Walsh spotted an opportunity that would reshape British Airways' competitive position at its home hub. Lufthansa, struggling with its own acquisition, was looking to exit British Midland International (BMI), a loss-making carrier that happened to control extremely valuable landing slots at capacity-constrained Heathrow.
This would increase IAG's share of take-off and landing slots at Heathrow from 45% to 53%.
On 30 March 2012, the sale of BMI was approved, conditional on giving up control of 14 daily slots at London Heathrow. Twelve of these were required to change hands completely while the remaining two could continue be part of the airline's slot portfolio but needed to be leased out.
BA's parent company, IAG, has to give up 14 pairs of daily take-off and landing slots at Heathrow, in order for its take-over of bmi to be approved. BA gains 56 pairs of slots per day, so without the 14, is gaining 42 pairs, which will be used to expand BA's operations at Heathrow with new destinations and more schedules. Seven of the relinquished Heathrow slots must be sold to operators providing flights to Edinburgh and Aberdeen.
The acquisition perfectly illustrated IAG's strategy: slots at constrained airports are scarce assets whose value compounds over time. BMI's routes were secondary; what mattered was the runway access that could be redeployed to more profitable long-haul services.
Vueling Acquisition (2013) – The Low-Cost Play
The logic behind acquiring Vueling was different but equally strategic. Rather than buying slots, IAG was buying a business model—a profitable low-cost carrier that could compete where legacy carriers couldn't.
In November 2012, International Airlines Group, whose subsidiary Iberia held a 45.85% stake in Vueling, offered to buy the remaining 54.15% of the company. IAG, also the owner of British Airways, plans to use Vueling to help stem losses at Iberia.
The negotiation proved contentious. On 27 March 2013, IAG improved its offer for Vueling, raising its offer per share from €7 to €9.25. Vueling shares quickly surged following the announcement.
On 9 April 2013, the board of Vueling unanimously recommended shareholders accept an improved offer of €9.25 per share from IAG. IAG CEO Willie Walsh confirmed that the board had recommended the new offer; however, Walsh also stated that Vueling would not be merged with Iberia, saying, "Vueling will operate as a stand-alone entity in the IAG Group." On 23 April 2013, IAG acquired control of Vueling.
British Airways parent IAG SA acquired control of discount carrier Vueling Airlines SA for 123.5 million euros ($160 million) as Europe's third largest airline group seeks to stem losses in Spain.
IAG Cargo Formation
In December 2012, IAG completed the merger of the cargo operations of British Airways, BMI and Iberia into a single business unit, IAG Cargo.
This consolidation exemplified IAG's approach to extracting synergies while preserving brand independence: combining back-office functions that customers never see while keeping the passenger-facing brands distinct.
Aer Lingus Acquisition (2015) – The Regulatory Marathon
For Willie Walsh, acquiring Aer Lingus was personal. He had led the airline as CEO before departing under controversial circumstances when the Irish government blocked his proposed management buyout and stock market float.
In January 2015, IAG made a bid of €1.36 billion for Aer Lingus. This was expected to be accepted after the rejection of two prior bids. In May 2015, the Irish government agreed to sell its stake in Aer Lingus to IAG, as did the Aer Lingus board in late January 2015. The takeover became irreversible on 18 August 2015.
The acquisition required navigating multiple stakeholders. Ryanair owned over 29% of Aer Lingus stock, and the Irish state owned over 25% before being bought out by IAG in 2015. The state had previously held an 85% shareholding until the government's decision to float the company on the Dublin and London stock exchanges on 2 October 2006.
On 26 May 2015, the Irish Government agreed to the sale of its 25% shareholding to IAG, with a takeover now dependent on Ryanair's position on the matter. On 10 July 2015, Ryanair voted to sell its nearly 30% stake in the airline. The takeover was later approved by the EU and US regulators.
The Irish government extracted significant concessions. In recognition of the importance of direct air services and connectivity for investment and tourism in Ireland, IAG agreed with Government to include a number of legally binding connectivity commitments in its offer, particularly as regards access between Irish airports and London Heathrow Airport. In relation to Aer Lingus' slots at Heathrow, these commitments provide that Aer Lingus' existing slots at Heathrow will continue to be held by Aer Lingus. Aer Lingus will continue to operate its current daily winter and summer scheduled frequencies between London Heathrow and Dublin, Cork and Shannon for at least seven years post-acquisition.
The 24 landing slots Aer Lingus controls at Heathrow are among the most lucrative for Willie Walsh to capture in the takeover with the Dublin-to-London route the busiest intercity air connection in Europe. The Dublin route is highly profitable, with a projected 28 million passengers expected to pass through Ireland's premier airport. The takeover would see Walsh again at the helm of the airline where he made his name as chief executive.
LEVEL Launch (2017) – The Long-Haul Low-Cost Experiment
By 2017, Norwegian Air Shuttle was disrupting transatlantic travel with low fares on long-haul routes. IAG's response was to create an entirely new brand.
On 17-Mar-2017, IAG announced the launch of its newest airline brand, 'Level', which it will use to operate the group's first long haul low cost flights from Jun-2017. The launch routes will be from Barcelona to Los Angeles, Oakland, Buenos Aires and Punta Cana. It will compete head to head with Norwegian on the Los Angeles and Oakland routes.
Level was established by IAG in response to increased competition in the low-cost long-haul market, including that of Norwegian Long Haul. On 15 March 2017, IAG CEO Willie Walsh announced the new brand, together with four destinations launching in June 2017 from Barcelona–El Prat Airport. These were Oakland, Los Angeles, Buenos Aires, and Punta Cana.
LEVEL reached its eighth anniversary at the start of Jun-2025, when it also surpassed the milestone of carrying three million passengers since its launch in 2017. LEVEL is IAG's long haul low-cost brand, based at Barcelona El Prat Airport, from where it serves five destinations in the United States and two in Latin America. It is Barcelona's largest long haul operator, and its only low-cost operator flying nonstop to the US and Latin America. It has outlasted all but one European low-cost long haul airline (French Bee). Moreover, although LEVEL is IAG's smallest airline by traffic and capacity, it is now also the group's fastest growing airline.
So what for investors: IAG's acquisition spree demonstrated disciplined capital allocation. Each deal served a distinct strategic purpose—slots (BMI), low-cost capability (Vueling), transatlantic network (Aer Lingus), competitive response (LEVEL). The multi-brand model allowed IAG to address different market segments without cannibalizing existing brands.
VIII. Qatar Airways: The Strategic Investor (2015–Present)
Building the Stake
In 2015, a new player entered IAG's ownership structure with implications that continue reverberating today. In March 2015, Qatar Airways purchased a 10% stake in International Airlines Group for 1.2 billion (US$1.26 billion). By early 2020, this had increased to 25% costing a further US$600 million.
Having acquired its first IAG shares in 2015, the Doha-based airline has upped its investment several times before reaching 20.01% in 2016. The latest rise of stake was announced by Qatar Airways on February 19, 2020.
Qatar Airways increased its shareholding in International Consolidated Airlines Group, S.A. ("IAG") from 21.4 per cent to 25.1 per cent.
Qatar Airways' investment strategy reflected its geographic constraints—blocked from regional airspace during the Gulf diplomatic crisis—and its ambitions to build a global airline portfolio. IAG offered exposure to premium transatlantic markets that Qatar Airways couldn't serve directly from Doha.
Strategic Implications
The investment proved crucial during COVID-19. Subject to shareholder approval at our AGM on September 8, IAG will undertake a capital increase of up to €2.75 billion which will enhance the Group's resilience, balance sheet and liquidity position. We're delighted that our largest shareholder, Qatar Airways, has already committed to support the proposed capital raising. This will best position IAG to continue executing its strategic objectives and capitalise on its existing market leading position and future growth and consolidation opportunities.
The relationship deepened through loyalty program integration. Avios is the frequent flyer currency of Aer Lingus, British Airways, Finnair, Iberia (including subsidiary Iberia Express and affiliate Air Nostrum, which operates as Iberia Regional), LEVEL, Qatar Airways, Vueling and Loganair.
So what for investors: Qatar Airways' stake represents both opportunity and complexity. The investment provides capital support and deepens commercial ties, but also creates governance questions about the influence of a state-owned entity. The 25% stake means Qatar can block extraordinary resolutions requiring 75% approval.
IX. The COVID-19 Crisis and Recovery (2020–2023)
The Pandemic Impact
Nothing in IAG's history prepared it for 2020. British Airways owner International Consolidated Airlines (IAG) sunk to a full year after tax loss of nearly €7bn (£6.1bn) in 2020, its worst ever. IAG, which owns Aer Lingus and Iberia along with British Airways, reported a statutory loss after tax of €6.92bn, an operating loss of €7.4bn and a passenger revenue decline of more than 75 per cent to €5.5bn.
Luis Gallego, IAG's Chief Executive Officer, said: "In 2020, we're reporting an operating loss of €4,365 million before exceptional items compared to an operating profit of €3,285 million in 2019. Total operating losses including exceptional items relating to fuel and currency hedges, early fleet retirement plus restructuring costs came to €7,426 million."
The new CEO, Luis Gallego, had taken over from Willie Walsh at perhaps the worst possible moment. Luis Gallego took over as CEO of International Airlines Group (IAG) in September 2020, leading the company through the most significant crisis in modern aviation history.
Luis Gallego (born December 1968) is a Spanish businessman serving as the chief executive officer (CEO) of International Airlines Group (IAG). Born in Madrid, Gallego graduated with a degree in aeronautical engineering from the Universidad Politécnica de Madrid and earned an MBA from IESE Business School. In 1997, Gallego joined Air Nostrum, where he held various operational and management positions until 2006. In 2006, he co-founded the low-cost carrier Clickair, which merged with Vueling in 2009, after which he served as chief operating officer (COO) at Vueling from 2009 to 2012. He then became CEO of Iberia Express in January 2012, launching the airline and establishing it as one of Europe's most efficient and punctual carriers.
Survival Strategy
IAG's response combined aggressive cost cutting with capital raising. We have taken effective action to preserve cash, boost liquidity and reduce our cost base. Despite this crisis, our liquidity remains strong. At 31 December, the Group's liquidity was €10.3 billion including a successful €2.7 billion capital increase and £2 billion loan commitment from UKEF. This is higher than at the start of the pandemic. "In 2020, our capacity decreased by 66.5 per cent while our non-fuel costs went down 37.1 per cent thanks to the extraordinary effort across our business.
IAG, which also owns Aer Lingus, Iberia and Vueling, is more dependent on travel between Britain and the United States than its competitors and so has been hit harder by 19 months of North Atlantic travel shutdown during the COVID-19 pandemic. Chief Executive Luis Gallego said the full reopening of that route was "pivotal."
Leadership changes followed the crisis. In one of his first major acts as CEO of IAG, Gallego replaced the CEO of British Airways Álex Cruz with the CEO of Aer Lingus Sean Doyle.
The Recovery
International Airlines Group (IAG) has published its full year results for 2024, posting record annual operating profits of €4.4 billion. The figure is up on the €3.5 billion recorded in 2023 – which was itself a record.
International Airlines Group (IAG) closed the 2024 financial year with an operating profit before exceptional items of €4.44 billion, marking a 26.7% increase from the €3.51 billion reported in 2023. The group's total revenue grew 9% to €32.1 billion, fueled by network expansion and strong airline performance.
In the first half of 2025, IAG's financial performance has resulted in a profit of 1.301 billion euros, a 43.8% increase when compared to the same time in 2024. In 2024, the profit was 905 million euros.
British Airways benefitting from its £7 billion transformation programme, with operating profit of £2,048 million (2023: £1,344 million) and a 14.2% margin, making good progress towards its 15% medium-term ambition.
So what for investors: IAG's recovery demonstrated the resilience of its model and the strength of its core markets. The transatlantic routes—particularly North Atlantic premium travel—proved to be among the fastest-recovering segments globally. The crisis also accelerated structural changes that improved productivity and reduced the cost base permanently.
X. The Air Europa Saga: Consolidation Limits (2019–2024)
The Original Deal
On November 4, 2019, International Airlines Group (IAG) announced plans to acquire Air Europa from Globalia for €1 billion with the deal expected to close in the first half of 2020. At the time, Air Europa operated a fleet of 66 aircraft and had generated an operating profit of €100 million in 2018. IAG stated its intention to integrate Air Europa into Iberia while indefinitely retaining the brand.
The strategic logic was compelling: Air Europa was the third-largest Spanish airline, operating from Madrid and competing directly with Iberia on domestic routes and Latin American services. Acquiring it would consolidate IAG's position and allow Madrid to develop as a true rival to Europe's largest hubs.
COVID Revisions
In January 2021 amid the COVID-19 pandemic, the parties agreed to cut the transaction price in half to €500 million. Plans for a merger were scrapped in November 2021, with both parties seeking ways to revive it, with a deadline set for the end of January 2022.
A revised €500 million deal was agreed in 2021 as a result of a much changed aviation landscape due to the Covid-19 pandemic, but later that year the group confirmed it was in advanced discussions to terminate the agreement. Hopes the acquisition might be resurrected were raised in 2022 when IAG took a 20% stake in Air Europa.
Regulatory Defeat
In January 2024, the European Commission said the deal could reduce competition on domestic routes in Spain and short-haul routes from Madrid to other major cities in Europe and the Mediterranean. The EU competition enforcer also cited concerns over long-haul routes between Madrid and the Americas.
IAG offered extraordinary concessions. We were offering 52% of the frequency, so it's almost half of the business. But what we had learned last week, in a meeting that we had with the commission was that that was not enough. As our CEO has always said, we will do this deal if it makes financial sense for us. You cannot buy a company and then give more than half of that to your competitors. So what we really believe is that making a bigger offer doesn't make sense in the financial aspect of the deal.
In August 2024, IAG announced that it would abandon the deal after deeming additional remedies to address EU antitrust conditions too onerous to make the deal viable. IAG said it would instead seek to grow its position in Madrid to develop it into a rival to Europe's major aviation hubs.
IAG said it had withdrawn from the transaction, stating that it was the group's assessment that "its intended acquisition of the remaining 80 per cent of the share capital of Air Europa Holdings that it does not currently own was no longer probable". The move will see IAG liable to pay a €50 million fee to break the agreement.
Aftermath and Alternatives
In mid 2025, Air France–KLM, Lufthansa and Turkish Airlines approached Globalia to present bids for a stake in Air Europa; by August, both Air France–KLM and Lufthansa abandoned negotiations, leaving Turkish Airlines as the only known remaining bidder.
Luis Gallego was quoted as saying that the group could look outside of Europe for its next acquisition. He noted that a South American airline could be on the table, to further strengthen the group's position on the transatlantic side. TAP Air Portugal was also said to be on the table.
So what for investors: The Air Europa failure illustrates regulatory constraints on European airline consolidation. Unlike U.S. regulators, who have approved extensive airline mergers, EU competition authorities remain skeptical about combinations that reduce choice on specific routes. Future IAG acquisitions may need to focus on targets outside the EU or in markets with less direct overlap.
XI. IAG Today: Market Position and Competitive Dynamics
Transatlantic Dominance
Transatlantic focus boosts IAG's profit, with the group holding 45% of the market and serving North America 150 times daily.
The North Atlantic route remains the strongest market for European airlines, characterized by a disciplined three-player oligopoly where 80% of capacity is controlled by joint ventures. Capacity growth is projected at only 4% in summer 2025, supporting pricing power. Lufthansa and IAG have nearly identical exposure to this market, with 46% and 47% of their long-haul capacity, respectively.
IAG and its joint business partners have market share of 30% on the attractive South Atlantic market representing 20% of IAG's total capacity by ASK. IAG is the market leader, operating over 50 flights each day to and from Latin America.
Individual Airline Performance
British Airways continues to grow in North America, focusing on premium travel. By late 2025, it will be the only airline offering a First-Class cabin on transatlantic flights from London. Meanwhile, Iberia has strengthened its leadership in the Europe-Latin America market, increasing its market share in the region by three percentage points compared to 2019.
IAG's airlines posted strong operational results in 2024. British Airways reported an operating profit of £2.05 billion, with a 14.2% margin, while Iberia and Vueling ranked among the world's most punctual airlines. Passenger traffic also saw broad-based growth, with IAG carrying 122 million passengers in 2024, a 5.6% increase compared to 2023.
IAG Loyalty: The Hidden Asset
Capital-light earnings growth from IAG Loyalty: operating profit growth of 14.4% to £420 million at a 17.3% margin.
Avios issuance and redemption is now at record levels. It issued 24% more Avios during the year and redemptions were 20% higher.
On the airline partner side, it is increasing the number of non-Group airlines that offer Avios as their currency, adding Finnair in 2024, in addition to Qatar in 2022 and now Loganair in early 2025.
XII. Bull Case vs. Bear Case: Strategic Analysis
Porter's Five Forces Analysis
Threat of New Entrants: LOW-MODERATE - Slot constraints at major hubs (particularly Heathrow) create substantial barriers - Capital requirements remain enormous despite low-cost disruption - Established joint ventures with antitrust immunity are difficult to replicate
Bargaining Power of Suppliers: MODERATE - Boeing-Airbus duopoly limits aircraft options - Engine manufacturers (Rolls-Royce, GE, Pratt & Whitney) have significant leverage - Fuel represents major input cost but pricing is market-determined
Bargaining Power of Buyers: MODERATE - Corporate travel buyers can negotiate volume discounts - Leisure travelers increasingly price-sensitive - Loyalty programs create switching costs
Threat of Substitutes: LOW-MODERATE - High-speed rail competitive on short-haul European routes - Video conferencing reduced some business travel permanently - Transatlantic has no substitutes for time-sensitive travel
Industry Rivalry: HIGH but DISCIPLINED - European legacy carriers operate in coordinated joint ventures - Low-cost carriers aggressive on short-haul but capacity constrained - Slot limitations prevent destructive capacity wars at key hubs
Hamilton Helmer's 7 Powers Analysis
Scale Economies: IAG benefits from procurement leverage, technology amortization, and network density. The joint venture with American Airlines creates additional scale in transatlantic markets.
Network Effects: Limited in traditional sense, but loyalty program creates multi-sided platform where more partners increase program value.
Counter-Positioning: IAG's multi-brand model allows both premium and low-cost positioning, making it difficult for pure-play competitors to attack.
Switching Costs: Frequent flyer programs, corporate contracts, and airport lounge access create meaningful switching costs for regular travelers.
Branding: British Airways, Iberia, and Aer Lingus carry substantial brand equity in their home markets and among diaspora populations.
Cornered Resource: Heathrow slots represent genuinely scarce assets that cannot be replicated. IAG controls approximately 50% of Heathrow capacity.
Process Power: Operational improvements at Iberia and emerging efficiency gains across the group suggest organizational capability advantages.
The Bull Case
- Transatlantic fortress: 45% market share with JV partners in the most profitable long-haul market globally
- Latin American gateway: Unique positioning through Iberia's network and cultural ties
- Hidden earnings power: IAG Loyalty growing at 14%+ with minimal capital requirements
- Balance sheet strength: Net debt/EBITDA at 1.1x provides acquisition capacity
- Premium positioning: BA's First Class focus and improving product differentiates from low-cost competition
- Slot scarcity: Heathrow constraints protect BA from new competition
- Management execution: Post-COVID recovery demonstrates operational capability
The Bear Case
- Corporate travel lag: "While corporate travel at British Airways parent International Airlines Group increased through 2024, we estimate that it will not fully recover to pre-Covid-19 levels, particularly for short duration and short-haul trips."
- Regulatory constraints: Air Europa failure demonstrates limits to European consolidation
- Qatar dependency: 25% ownership by state-owned carrier creates governance and strategic alignment questions
- Labor intensity: Union negotiations remain challenging across all operating companies
- Environmental costs: Environmental regulations are one of the biggest challenges that we need to manage. In 2024 we continued to make progress towards Net Zero emissions by 2050.
- Aircraft delivery delays: BA's growth plans would be impacted over the next three years due to new aircraft delivery delays and engine maintenance issues.
- Currency exposure: British pound/euro volatility affects consolidated results
- Geopolitical risk: Transatlantic routes depend on open borders and stable US-Europe relations
Myth vs. Reality
Myth: IAG is just British Airways with some European subsidiaries. Reality: IAG operates five distinct airline brands with different positioning serving complementary markets. No single brand dominates revenues.
Myth: Low-cost carriers will eventually destroy legacy airline profitability. Reality: IAG owns Vueling and LEVEL precisely to address low-cost competition. The multi-brand model allows participation in all market segments.
Myth: Airlines are terrible businesses. Reality: Well-positioned airlines at constrained hubs have proven capable of sustained profitability. IAG's 13.8% operating margin in 2024 exceeds many "higher-quality" industrial companies.
XIII. Key Performance Indicators
For long-term fundamental investors tracking IAG, three KPIs matter most:
1. North Atlantic Passenger Revenue per Available Seat Kilometer (PRASK) This measures pricing power in IAG's most important market. The North Atlantic generates the highest unit revenues of any long-haul market from Europe. Tracking PRASK by route type (premium vs. economy, point-to-point vs. connecting) reveals underlying demand trends and competitive intensity. IAG's JV market share of 45% should translate to pricing stability; significant PRASK declines would signal competitive threats or demand weakness.
2. Non-Fuel Unit Cost Trajectory IAG's transformation programs target consistent improvement in cost efficiency. The key metric is non-fuel cost per available seat kilometer at constant currency. Management has guided for slight increases as they invest in customer proposition, but medium-term the trajectory should bend downward. Labor agreements (particularly at BA) and fleet modernization drive this metric. Rising non-fuel unit costs above inflation would signal execution problems.
3. IAG Loyalty Operating Profit and Avios Issuance Growth The loyalty business represents IAG's highest-margin, lowest-capital-intensity earnings stream. Growing Avios issuance indicates expanding partnerships and customer engagement; growing operating profit demonstrates ability to monetize that engagement. IAG Loyalty's 17.3% margin substantially exceeds airline operating margins, meaning loyalty growth disproportionately improves group economics.
XIV. Material Risks and Regulatory Overhangs
EU Emissions Trading System (ETS) and SAF Mandates: Aviation faces rising regulatory costs as Europe implements aggressive decarbonization requirements. We are continuing to secure supplies of Sustainable Aviation Fuel (SAF) to deliver on our target of 10% in 2030 and are focused on ensuring we can achieve mandated volumes, particularly for second and third generation SAF.
Non-EU Ownership Restrictions: European aviation maintains restrictions on foreign ownership that could become problematic. Qatar's 25.1% stake approaches regulatory limits, and post-Brexit complexities add uncertainty to ownership structures.
Pension Obligations: British Airways operates substantial defined benefit pension schemes with periodic funding requirements. While current funding is adequate, interest rate changes and longevity assumptions create ongoing risks.
Accounting Judgments: Aircraft useful lives and residual values represent significant judgments affecting depreciation expense. Lease capitalization under IFRS 16 substantially increases reported assets and liabilities. Currency translation of Spanish subsidiaries creates P&L and balance sheet volatility.
XV. Conclusion: The Consolidation Champion's Next Chapter
International Airlines Group stands as perhaps the most successful example of cross-border airline consolidation in history. From the 2011 merger of two struggling flag carriers through acquisitions, crises, and now record profitability, IAG has validated a model that many doubted could work.
The key ingredients of that success—brand preservation within a financial holding structure, aggressive cost management, strategic slot accumulation, and disciplined capital allocation—remain intact under Luis Gallego's leadership. The transatlantic markets that define IAG's competitive position show no signs of structural weakness.
Yet the Air Europa failure reveals limits. European regulators have demonstrated they will block consolidation that meaningfully reduces competition, even when airlines offer substantial remedies. IAG's future growth must likely come from outside Europe or from organic expansion of existing networks.
Gallego has nearly 30 years of broad experience in the aviation industry. He became IAG's chief executive in September 2020, joining from Iberia, where he was chairman and chief executive from January 2014. His one-year term began as Chair of the IATA Board on 2 June 2025. Gallego is the 83rd Chair of the IATA Board on which he has served since 2018.
The question for the next decade isn't whether IAG can survive—it has demonstrated resilience through multiple crises. The question is whether it can continue growing in a regulatory environment that views airline consolidation skeptically, an environmental context that imposes rising costs, and a competitive landscape where Gulf carriers and ultra-long-haul narrowbodies threaten traditional hub models.
For investors, IAG offers exposure to a genuine franchise position in premium transatlantic aviation, a hidden gem in the loyalty business, and management with a track record of operational execution. The risks are real but largely visible. At the right price, Europe's consolidation champion remains one of the more interesting opportunities in global aviation.
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