British Airways owner considers Norwegian bid

British Airways owner considers Norwegian bid

British Airways owner International Airlines Group (IAG) has confirmed that it is exploring a potential acquisition of low-cost carrier Norwegian Air Shuttle.

Shares in Norwegian jumped by as much as 26% on news of a possible tie-up before trading was suspended on the Oslo Stock Exchange.

According to reports, IAG wants to boost its market share amid increasing competition from low-cost carriers.

Norwegian declined to comment.

IAG said it had bought a minority stake in the airline with a view to opening talks about a deal.

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“The minority investment is intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian,” IAG said.

However, it said no discussions have taken place and it has not decided whether to make an offer.

Disrupting the market

Norwegian Air has earned a name for its low-cost deals, including £99 flights from Edinburgh and Dublin to New York.

However, it posted a larger-than-expected loss in its first quarter and had to raise fresh funds through a share placing in February to cope with its rapid expansion and higher fuel costs.

Nevertheless, its move into discount intercontinental flights has shaken up the market and forced bigger rivals such as IAG and Air France to take measures to win back customers.

IAG has already expanded its budget Level and Aer Lingus long-haul divisions, while adding European airport slots from failed UK rival Monarch Airlines.

Shares in IAG initially dropped 3.4% on the news, but have recovered to trade flat in mid morning trade.

Analysis: BBC business editor, Simon Jack

Norwegian has been ruffling feathers in the aviation market, bringing a budget airline model to the long-haul sector. The industry is divided as to whether it works when you cross the Atlantic.

Norwegian has bet big that it does. Starting life as a short-haul carrier, it has nearly 200 long-range aircraft on order and the legacy carriers have had to respond.

BA is dabbling with its own offshoot, called Level, and announced cheaper fares for BA long-haul passengers not checking in bags and not wanting food and drinks included in the fare.

Air France’s Joon is also trying to lower long-haul costs. Norwegian is still losing money and its finances are stretched by the number of planes it’s buying, but today’s announcement from BA suggests Norwegian has proved the concept is a good one.

Whether passengers are best served by a legacy carrier swallowing a competitive upstart is another debate.

Source: BBC News

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