Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Norwegian Air becomes more enticing takeover target for British Airways owner IAG

British Airways parent IAG has said it remains interested in buying Norwegian but will sell its shares if no deal can be agreed
IAG
IAG is investing US$65mln on improving its customer offering at JFK airport

British Airways has lost its place as the biggest non-US airline on transatlantic routes to and from the New York area to the carrier its parent company has been trying to buy.

Norwegian Air Shuttle, which has rebuffed two takeover offers from British Airways owner International Consolidated Airlines Group PLC (LON:IAG), has overtaken its British rival in the past year by carrying more passengers to or from airports in the New York area.

IAG threatens to sell shares in Norwegian 

In the year to the end of July, Norwegian carried 1.67mln passengers on these transatlantic routes, compared to the 1.63mln passengers carried by British Airways, data from the Port Authority of New York & New Jersey has revealed.

Norwegian Air, which offers low-cost flights, has been expanding in the transatlantic market by building up its fleet over the past five years. This led IAG to initiate takeover talks earlier this year after buying a 4.6% stake in the Scandinavian airline.

After being turned down twice, IAG has said it remains interested in buying Norwegian but will sell its shares if no deal can be agreed.

Speaking on the pursuit to buy Norwegian in August, IAG boss Willie Walsh said: “If that conversation doesn’t go anywhere, and it’s clearly not going anywhere at the moment, we are not going to hold on to those shares.”

IAG, which also owns Aer Lingus, Iberia and Vueling airlines, wants to buy Norwegian because it has been taking market share in transatlantic travel by transforming the industry with no-frills flights from the UK to the US for less than £200.

READ: IAG rejected bid target Norwegian Air Shuttle sees second-quarter net profit beat expectations as it reins in costs

“Fares have been too high for too long as transatlantic routes have been long dominated by carriers with outdated legacies running on fumes,” a Norwegian spokesman said.

“Norwegian will continue to spread its wings to the Big Apple with a third-daily service between London and New York JFK from 28 October.”

However, Norwegian’s rapid expansion has resulted in steep losses and debts of £2bn. It faces increasing pressure from investors to control costs and shore up its balance sheet.

Upside to merger but risks of IAG overpaying, says analyst

George Salmon, equity analyst at Hargreaves Lansdown, said: “There’s clear upside to combining the two groups, but as ever, whether it’s a good idea or not will depend on price. IAG has been rebuffed twice before, so it’s unlikely to get Norwegian on the cheap. That heightens the risk of overpaying.”

In response to more traditional airlines offering low-cost tickets on transatlantic flights, IAG set up budget long-haul airline Level last year.

READ: British Airways owner IAG to expand long-haul operations from Vienna with Level airline

British Airways has recently had a number of complaints about poor customer service and has been hit by several IT glitches that caused flight delays and ticket cancellations earlier this year.

It has been named alongside Ryanair Holdings PLC (LON:RYA) as one of the worse airlines operating in the UK by consumer group Which?

At the first half results in August, Walsh stressed that customer satisfaction was improving as the company posted a doubling in pre-tax profits to €1.7bn for the first half of this year, driven by strong demand in Europe, North America and Latin America.

In a bid to improve customer satisfaction and boost ticket sales on flights to and from New York, IAG recently announced a US$65mln investment on new lounges, improved food, seating and shops at JFK. 

A spokesperson for British Airways said the airline remains committed to New York, flying up to 70 times a week from all three of its London airports.

View full IAG profile View Profile

International Consolidated Airlines Group Timeline

Related Articles

chrome pipes
June 20 2018
Another change recently was for Tharisa to take over the running of the mine, which involved it buying the fleet from its contractor
Enertopia Corp's partner GWT upbeat on potential of lithium recovery tests
October 25 2017
The feedstock used in the tests comes from the group's Clayton valley project in Nevada
Picture of Malaysian city
May 09 2018
The group’s ability to provide benefits to the retail sector was demonstrated in 2017.

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use