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The most recent Department of Transportation data show inflation-adjusted airfares in the fourth quarter were 2% higher than a year earlier, even though the price of jet fuel was down 25% over the same period.Fuel makes up about 30% of an airline’s total expenses, so a 25% decline in jet fuel prices implies a 7.5% decrease in costs, all else being equal.Ten days ago, as millions of Madrid workers prepared to leave their desks for their traditional lengthy lunchtime break, Willie Walsh strode into the offices of International Airlines Group in the Spanish capital’s wealthy Salamanca district, for a decisive board meeting.His previous two bids had been pitched at €2.30, then €2.40 a share.Air France had already merged with KLM in 2004, while Lufthansa had swallowed up Austrian Airlines, BMI and Swiss International. In 2012 Walsh bought BMI from Lufthansa, giving IAG more slots at Heathrow, and a year later took full control of the Spanish low-cost airline Vueling.Volodymyr Bilotkach does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.Over the last 15 years or so, the airline industry experienced six large mergers (most notably Delta-Northwest, United-Continental and American-US Airways), the disappearance of several smaller carriers (Aloha, ATA, National) and two successful entries (Jet Blue and Virgin America).
As well as fears about the security of Aer Lingus’s 4,000 employees, there are concerns about the future of the Heathrow slots and Ireland’s broader air route connectivity.
The Irish airline is an attractive target that Ryanair has been blocked from buying in the past.
Not only is it profitable, but it has 23 take off and landing slots at Heathrow, which are highly sought after.
The breakthrough Walsh had been waiting for since he made his first offer on Dec 14 came hours later.
By the evening, the Aer Lingus board had indicated to IAG that it was minded to back the bid, subject to conversations with its second-largest shareholder – the Irish government – over the weekend.
But first, the latest improved offer had to be approved at an IAG board meeting.