It’s been on, off, on, off and finally looks like it’s on! 2025 will be the year of the great TAP Air Portugal (TAP) sale, as finally – it appears – the Portuguese Government have decided the terms and conditions to attach to the sale of the national airline. There was also further support of the potential sale from IAG who confirmed their interest and even suggested they would be prepared to take an initial minority interest with a staged move to majority share over time.
So, seemingly it’s on – but what’s the prize, why the interest and what realistically makes most sense for the buyer and seller?
TAP Air Portugal, A Niche Carrier
In the European market, TAP is a relatively small airline, ranking 17th and operating 13.8 million seats in 2024. This places the carrier just behind Austrian Airlines but, interestingly, slightly ahead of Aer Lingus. Notably, TAP is the largest legacy airline in Europe that remains independent of a larger airline group—though that could soon change. While TAP accounts for only about 1.4% of total capacity from Western Europe, its network includes some unique niches that enhance its appeal beyond its size.
TAP and Lisbon have always been regarded as the European hub to Brazil, and since Brazil is the largest market in Latin America with 134 million seats in 2024, it makes the country of interest to all the major European legacy airlines and their networks. For TAP, their largest regional network is of course to Western Europe to which they allocate around 82% of all their capacity.
While that may seem a large proportion, British Airways have 79% of their total capacity invested in Western Europe and Lufthansa an even closer 81%. But what seems to be interesting most parties is the 7% share of capacity that is allocated to Lower South America where TAP actually have a strong position operating 18% of all European airline capacity to the region and one in four seats (26%) to Brazil.
While Brazil has for many years been a market of ups and downs – indeed, two of the country’s largest airlines are currently seeking approval to merge – the size and potential of the market cannot be ignored. As a valuable source of both passenger and cargo for many of Europe’s legacy airlines, the potential to strengthen a position in that market is substantial.
TAP’s Brazilian Network Strength
Unlike nearly every other European airline operating to Lower South America, the TAP network is uniquely 100% focused on Brazil (as the network map below shows) – there are no “distractions” such as a Buenos Aires service and in a few cases extensions to Santiago. That focus is also a point of significant concentration, with the airline serving ten destinations in Brazil; six of those markets are not being served by any other airline to Europe, and four of those markets are served by A320NEOs – making for a very cost efficient and probably profitable operation.
Undoubtedly geography also plays an important role in the TAP operation. Portugal, and specifically Lisbon, are the most westerly major airports in Europe, and Lisbon enjoys a similar position as London does on the transatlantic market where British Airways enjoy a very strong and profitable position funnelling traffic through their Heathrow hub.
To the end of November 2024, TAP carried nearly 880,000 connecting passengers through their Lisbon hub from Brazil to Western Europe with London accounting for 57,700 and Paris 55,400. From Brazil Fortaleza there were 59,800 and Belo Horizonte 53,200, showcasing the impressive strength of these secondary city routes.
Connecting traffic – although extremely switchable between alternate hubs – is important, and in the context of airline alliances has an important role to play. For members of the Star Alliance the possibility of picking up connecting traffic via Lisbon is valuable, and the alliance dimension will be part of the consideration for those airlines that are interested in TAP.
Will Airline Alliances Be A Factor?
A Star Alliance member since early 2005, TAP is a strategically important member of the group, but certainly not a major influencer in terms of size and scale. With over one billion seats globally, Star Alliance is the largest of the three major groupings accounting for 17% of all capacity worldwide and around one third larger than second placed Skyteam. With 20.2 million seats per annum, TAP account for 2% of all capacity produced within Star and they are the 14th largest member just ahead of COPA Airlines but measured a relatively junior part of Star. And while losing any airline from an alliance is frustrating and inevitably leads to a lot of work behind the scenes in terms of membership status and operational systems, it does happen more frequently than many would expect.
For TAP and their owners perhaps a key question is in which alliance, if any, would they secure a larger presence and increase their importance?
Joining the Skyteam Alliance would currently rank TAP in twelfth place. However, if ITA makes the anticipated switch to the Star Alliance in 2025, TAP would climb to eleventh place, gaining a bit more prominence with 2.5% of Skyteam’s capacity. A move to the OneWorld Alliance would see TAP become the tenth largest airline member and gain a 2.8% share of the alliance capacity – a slightly more advantageous position compared to its standing in either Star or Skyteam. Ultimately, of course, much of the analysis being undertaken in all three alliance head office groups now will be around potential existing member revenue generation that could be added by TAP joining and that may in turn sway the thinking of each of the apparent interested parties.
Strategic Influences Will Be Key
For each interested airline one of the key factors will be the strategic value of TAP – how they see the complementarity of the airline, how they would see both the network synergies, and the risk of someone else acquiring the airline. Taking IAG for instance; TAP falling into the Lufthansa family may create challenges to their position across Spain and the Western Europe region, while for the Lufthansa Group acquiring TAP would give them a strong position in connecting traffic from the whole of Brazil to Europe through Lisbon. However, Lufthansa are currently trying to digest ITA into their family and as other European airlines have found out previously that is a very difficult, time consuming and expensive task; could they take on another acquisition this year; perhaps not.
For the Skyteam Alliance it’s an intriguing opportunity. There has always been a large local market from Portugal to France, for instance, but neither Air France or KLM have expressed much interest in the opportunity, and while they may look out of curiosity it doesn’t sit with the conservative nature of the combined airline entity.
All of this does perhaps make IAG the more likely suitor for TAP, although of course it will all come down to a combination of price, deal structure and importantly associated regulatory requirements. IAG walked away from their proposed Air Europa merger as the required remedies from the regulator were consider too high a price to pay, although in truth the performance of Air Europa after the initial announcement may have been a bigger consideration. Certainly, if IAG had acquired Air Europa then any TAP acquisition may have been too difficult a challenge in a relatively short period of time.
There will inevitably be some twists and turns on the planned privatisation of TAP and from experience we know that the favourite doesn’t always win, and that a surprise candidate sometimes appears from the oddest of places. But for now, IAG seem to be making the running, making the right noises around maintaining the brand personality and national nuances as well as an initial minority share that will build over time. Will that appease all parties, probably not all – but it’s going to please most I suspect!
