IAG, the parent of Aer Lingus and British Airways, today announced a €1 billion takeover of Spain's Air Europa to boost its presence on routes to Latin America and the Caribbean. 

The deal comes less than six months after a proposal by BA, Iberia and partners American Airlines and LATAM Airlines aimed at reshaping international air travel in Latin America was struck down by Chile.  

IAG shares rose as much as 2.3% to 555 pence in early London trading but some analysts said IAG may have to shed routes in order to win regulatory approval. 

Ryanair CEO Michael O'Leary said his company will ask the UK's market watchdog to force IAG to make divestments as part of its Air Europa takeover, a deal he said would be bad for competition. 

Analysts said that potential remedies, perhaps in the form of slot release or behavioural restrictions, may be required and these could impact the potential synergies. 

IAG also owns carriers Iberia, Level and Vueling. 

Air Europa serves 69 destinations, including long-haul routes to the Americas and the Caribbean. It had a fleet of 66 aircraft at the end of 2018. 

It will initially keep its brand and as it gets integrated into the existing hub at Madrid it will be a standalone operation run by Iberia boss Luis Gallego, IAG said.

"This is of strategic importance for the Madrid hub, which in recent years has lagged behind other European hubs," said Gallego, adding that Madrid had the potential to serve as a gateway between Asia and Latin America.

Norwegian Air, which has shaken up the market for travel across the Atlantic with cut price fares, last month signed a partnership with JetBlue Airways to enable European passengers to book straight through to around 100 US cities. 

IAG said it expected the Air Europa deal, which will be funded through external debt, to close in the second half of next year and for it to add to its earnings in the first full year after the closure. 

"Acquiring Air Europa would add a new competitive, cost effective airline to IAG, consolidating Madrid as a leading European hub and resulting in IAG achieving South Atlantic leadership," Willie Walsh, chief executive of IAG said. 

The global aviation sector is charting a path through high-profile failures, fierce competition, economic woes and high fuel prices.  

Recent high-profile casualties in Europe include French carriers Aigle Azur and XL Airways, as well as Slovenia's Adria Airways and Britain's Thomas Cook, which was both a tour operator and an airline. 

Jane Bloomfield, head of business development at Kantar UK, a research firm, said the industry faced multiple challenges that were best faced by established brands.

"Achieving growth today is challenging, particularly in the airline and travel industry, which is being squeezed from all directions," Ms Bloomfield told AFP.

"Changing consumer needs, behaviour and spending, increased costs of raw materials, environmental/sustainability issues and market disruption are all creating the perfect storm for established, long-standing brands," she said.

"Organisations cannot continue to rely on growth through stealing competitive share or cutting costs," she added.