Vueling set to start merged life in July

Merging Barcelona-based low-cost carriers Clickair and Vueling expect the final piece of regulatory approval from the Spanish authorities shortly, enabling the newly-merged entity to begin its new joint life during July.

Under the merger, for which the carriers secured European Commission approval in January, the combined carrier will operate asVueling and begin with a fleet of 35 Airbus A320s. The new carrier will be 45%-owned by Clickair shareholder Iberia.

"As we head to the end of the second quarter we only have one regulatory approval left," explained chief executive designate for the new carrier Alex Cruz, the chief of Clickair, during a recent media briefing in London. The final piece of the regulatory jigsaw is an Iberia exemption request over stock market rules requiring shareholders which exceed the 30% threshold to make an offer for outstanding shares.

"When we get this final regulatory approval, hopefully this week, we’ll enter the final set of co-ordination meeting with the Spanish aviation authorities."

While Cruz could not give a precise date for the transition, he expects it to be around the middle of July. "On ‘D-day’ we will have everything done but the painting of the aircraft," he says. Painting of the first batch of Clickair aircraft into Vueling colours will begin in September and all 18 Clickair aircraft should be ready by the middle of November.

Cruz believes the merged entity strikes a good balance between the two airlines. "The starting position for both carriers was quite similar. Both sides felt they had something to lose," says Cruz. Clickair had a brand which stood to vanish in the merger. Vueling had its own history and shareholders, says Cruz, when "all of a sudden, Iberia appeared in the picture".

But while Iberia is a strong shareholder, Cruz says Vueling has freedom to make its own decisions. Vueling competes with Iberia on a number of routes. "Obviously 45% [of the shares] gives you a lot of say," says Cruz. "But from the very beginning, Iberia knew that it could not interfere with the start of Clickair and I think they fully understand any interference from an operations perspective, will have a detrimental effect."

Inversiones Hemisferio is the second-largest shareholder in the new entity, with 15%, while Air Nostrum owner Nefinsa holds a 5% stake. The majority of the remaining stock is freely traded. Both Clickair and Vueling are represented in the merged carrier’s leadership, Cruz as chief being joined by Vueling’s Josep Pique as non-executive chairman.

He says the decision to stick to the more-established Vueling name exploits the strength of the brand in Spain. "Vueling is a very strong brand and it spent of a lot of money on this at the very beginning," he says. "Vueling is considered as the ‘apple’ of Spain. These are attributes people relate to.

"[With] Clickair there is a feeling this is a very efficient operation and a cost-efficient platform."

The merger brings together two prominent players at Barcelona. Vueling has around 12% market share and Clickair around 14%. "Together we will have the largest market share at Barcelona," says Cruz. Barcelona is one of six Spanish bases the joint carrier will have, in a network spanning 90 routes and which will carry around 11 million passengers this year.

Vueling is aiming for annual revenues of €800 million ($1.1 billion). It hopes to generate synergy revenues of between €40-45 million annually, and cost synergies of up to €75 million over the next three years.

Between 40 and 60 jobs will be cut through merging the headquarters operations, while some handling roles will be transferred outside of the company meaning total headcount will be reduced to around 1,300 compared with 1,600 today.

Both carriers were loss-making at an operating level in 2008, although Vueling’s financial performance last year showed a marked improvement on 2007. Cruz is reluctant to make predictions on the year ahead, but says the extent to which lower fuel costs can offset falling demand will be key.

"I think it is fair to say that the fuel environment has created new opportunities for profitability for both companies," says Cruz. "At the same time the drops in demand in passengers flown in Spain have been staggering."

He says the Spanish market’s figures are 20-25% down over the first five months of the year. "Do both things together put us in a position of profitability? I can’t say. We will be closer to being able to say later in the year," he states.