Howard Wheeldon: Why this is the best deal for investors
Saturday 14 November 2009
There is no reason why investors should not welcome the prospect of a merger between British Airways and Iberia. This is far more about revenue and profit enhancement than it is about cost savings.
At its simplest, you take BA's strengths – Asia, Middle East and North Atlantic – and put them with Iberia's strengths - South and Latin Americas, plus Africa – and you have a global airline. In time, BA and Iberia will adjust their respective services to more suit customer need, removing overlapping services, even freeing certain slots at Heathrow.
Still, all of this benefit can only be in the future. Indeed, we cannot even begin to say when the recession in the airline industry will start to abate, or whether when it does, a sharp rise in the fuel price will immediately follow.
But such uncertainties are all additional reason to back the prospect of a workable consolidation such as this, even if one would be stupid not to admit that BA might have done a lot better if it had pursued a merger with KLM years ago instead of letting it escape into the eager hands of Air France.
Howard Wheeldon is senior strategist at BGC Brokers
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