One of Europe’s biggest carriers rebuffed a takeover proposal by a smaller rival, in the first publicly disclosed attempt at significant consolidation in the pandemic-ravaged airline industry.
Hungary’s Wizz Air Holdings PLC, a budget carrier that has tried to boost its market share during the pandemic, approached U.K.-based easyJet PLC with a plan to combine operations, according to people familiar with the matter. EasyJet disclosed the approach Thursday, but didn’t name the suitor, and said the bid under valued the airline. Wizz Air declined to comment.
EasyJet Chief Executive Johan Lundgren didn’t rule out a future tie-up with a rival.
“Everybody would agree that when you go through situations like this, that there are consolidation plays happening," Mr. Lundgren told reporters. “From an M&A transaction point of view, we’re not against that, but it has to deliver value for the shareholders."
Such a deal would significantly reorder Europe’s airline industry. EasyJet is Europe’s second-largest budget carrier, behind Ryanair Holdings PLC. Wizz Air is No. 3. While most other big carriers have retrenched, Wizz Air Chief Executive József Váradi has accelerated aircraft deliveries and hired hundreds of pilots and cabin crew, seeking to expand at airports eager to restore routes that others have cut.
“It would definitely be a major shake-up of the European space," analysts at Bernstein said.
The pandemic has ravished the airline industry more than most. Early last year, passengers’ worries over catching Covid-19 on a plane, and then global travel restrictions, grounded much of the world’s fleet. Domestic travel in places like China and the U.S. started to take off again late 2020 and earlier this year, but the Delta variant sent bookings lower again.
On Thursday, several major airlines, including Southwest Airlines Co., JetBlue Airways Corp., United Airlines Holdings Inc. and American Airlines Group Inc. said that rising cases would mean lower-than-forecast earnings expectations.
The European airline industry has been much slower to start back up than in its U.S. equivalent, largely because so much of it is reliant on cross-border travel that governments have been reluctant to fully reopen. After a relatively successful vaccination drive, and after the continent’s earlier battle with the Delta variant, intracontinental air travel in Europe is climbing.
Discount, short-haul carriers like Wizz Air and easyJet have come through the pandemic with stronger balance sheets than their legacy, long-haul rivals, especially in Europe. That is mostly down to their typically higher cash positions and lower cost bases. Network carriers like British Airways-owner International Consolidated Airlines Group SA and Germany’s Deutsche Lufthansa AG have burned through billions of dollars during the pandemic.
Discounters are also poised to benefit from short-haul holiday travelers, who are expected to start flying again before the more lucrative international and business-class travelers. These budget airlines have typically come out stronger in prior downturns, after expanding to new markets left underserved by bigger players in retreat.
In Europe, legacy carriers have been delaying the resumption of their own intracontinental flights, which are typically used to feed passengers onto aircraft flying longer, more profitable routes. That is opening up space for the likes of Wizz Air, easyJet and Ryanair, Europe’s biggest airline by passenger numbers, to grab new markets.
Wizz Air is backed by Bill Franke, an aviation industry stalwart and chairman of Denver-based Frontier Group Holdings, Inc. Based in Budapest, the airline started as a low-cost operation focused primarily on Eastern Europe, but in recent years has expanded rapidly into Western Europe. In 2019, it began operating a new subsidiary in Abu Dhabi. While most airlines are still flying well below their pre-pandemic levels, Wizz Air’s capacity last month was 3% higher than in August 2019.
EasyJet’s Mr. Lundgren said Thursday that instead of a tie-up, the airline was moving forward with a rights issue, seeking to raise 1.2 billion pounds, equivalent to around $1.7 billion, to finance expansion opportunities in the next six to 12 months. The airline said it was eyeing opportunities to snatch up takeoff and landing slots at airports across the continent left open by airlines such as British Airways and Lufthansa.
Other airlines are also taking steps to better position themselves ahead of any post-pandemic resumption of travel. British Airways, for example, is amid negotiations with its unions over creating a new short-haul operation that might bolster its international network.
Executives at Virgin Atlantic Airways Ltd., meanwhile, have been meeting potential investors about a possible initial public offering, according to people familiar with the matter. The airline laid off half its staff in the first few months of the pandemic, raised $2.1 billion in emergency funding and grounded most of its routes. Now, its message to investors, according to the people familiar with the matter, is that squeezing out costs has positioned it as a strong player once flying, especially between the U.S. and U.K., starts fully up again.
This story has been published from a wire agency feed without modifications to the text
