Gabriel’s scarcity rent – it’s management stupid!

Airline movements in Europe: British Airways and Iberia on hold (and a remote highway too)

21 June, 2007 at 12:58 pm 3 comments

It’s funny that the Wall Street Journal published this week an article about the consolidation of the European airline industry. I’ve written about Iberia and it’s many contenders in two previous posts: Airlines corporate hunt: British Airways and TPG finally join forces to buy Iberia and Iberia and its brides… where’s the value?

What has happened this time about Iberia? In fact very little.

I don’t know what the WSJ article said because I’m not a subscriber. But this wave of consolidation that they talk about has come to a stall in Spain. Why?

BA and Iberia: having second thoughts?

One of my assumptions was that, where there is a flagship airline, there are also political interests. No need to prove me wrong. Politics have a lot to do with that. And it’s Iberia who has been stalling the situation.

Because Iberia’s dominant position in Spain, specially in Madrid, has a lot to do with political connections. They have been granted the best slots and the lion’s share of Madrid brand new terminal: T4.

Madrid’s brand new Terminal 4, granted to Iberia and OneWorld

The Spanish government has already required that Iberia needs to be Spanish to keep enjoying the privileges it already enjoys (exclusive routes, slot assignement, top location at Spain’s first airport).

In time this privileges will cease to exist, specially when European regulations in open skies come to be in effect. But I don’t know any single country that doesn’t -or didn’t- protect its flagship airline.

The government’s point: we’ll still protect the status quo, but only for a Spanish company. And Texas Pacific Group or British Airways are not exactly Spanish. But, how do you know if Iberia is Spanish right now? How can you know who, in fact, owns free floating shares?

Anyway, these are advantadges that no company should have, regardless of its nationality. They are just imperfections of the market that the consumer ends up, as always, paying. But that’s how it is, and that’s how I like to tell

State Highway 121, Texas, U.S.

More noise from Texas

And right now another Spanish company, the infrastructure operator CINTRA is fighting for a highway concession in Texas: State Highway 121. The company already exploits two highways in the US: Chicago Skyway and Indiana Toll Road, and is already constructing a third one in Texas: SH 130. The concession was granted to CINTRA, but it has been recently revised. The Texas Transport Commision still has the final word but taking back a concession already granted to a Spanish company wouldn’t help politically Texas Pacific Group interests in Iberia.

Which strategy now?

Just let the time pass. Iberia has not given any of the contenders its data, and it is for a very good reason. The longer it takes, the better. Why? Spain will hold a general election in nine months. Maybe the government will change but, in any case, the government will be less pressured and open to negotiations.

Entry filed under: Aviation, b-school, Business, MBA, Microeconomy, Politics. Tags: .