British Airways owner, International Consolidated Airlines Group SA on Thursday said it has abandoned plans to buy Spain’s Air Europa, citing regulatory concerns.

The airline also paid its first dividend since 2019 despite a marginal fall in half-year profit. It had been expected to report results on Friday.

‘The board of directors has concluded that in the current regulatory environment it would not be in the best interests of shareholders to continue with the transaction,’ IAG said in a statement.

IAG will pay Air Europa owner Globalia €50 million as a result of the termination.

In February 2023, IAG said it will buy the remaining 80% stake in Air Europa for around €500 million, after it had secured a 20% stake in August 2022. It will continue to hold the minority interest.

Chief Executive Luis Gallego said the decision was is in the best interests of shareholders.

‘IAG remains committed to its strategy, including competing effectively from its Madrid hub. This is a strategy which is delivering strong results. We will continue to develop our presence in Madrid so that the hub can develop as a rival to Europe’s largest hub airports.’’

IAG had offered concessions to the European Commission in June, after the watchdog warned the deal could reduce competition.

But Gallego told Reuters that the EC said the concessions offered by the group were not enough.

In addition, IAG announced results for the three and six months to June 30.

Pretax profit in the second quarter fell 2.2% to €1.13 billion from €1.16 billion a year prior. Operating profit eased 0.8% to €1.24 billion from €1.25 billion.

Revenue climbed 7.8% to €8.30 billion from €7.69 billion. Within this, passenger revenue rose 9.9% to €7.41 billion from €6.74 billion.

For the six months period, pretax profit rose 0.9% to €1.05 billion from €1.04 billion. Revenue jumped 8.4% to €14.72 billion from €13.58 billion.

IAG also paid an interim dividend of 3 euro cents.

IAG last paid an interim dividend in late 2019, months before the global pandemic grounded airlines around the world causing financial havoc.

Gallego said: ’We see continuing strong demand for travel in the attractive core markets in which we operate: North Atlantic, Latin America and

intra-Europe.‘

Capacity, measured by average seat kilometres, grew 7.5% for the first half, while passenger unit revenue for the half year increased by 2.9%, reflecting strong demand for travel as well as for brand offerings.

IAG said core markets, North Atlantic, Latin America and intra-Europe, are performing well but it is seeing some softness in long-haul pricing in Dublin, as well as in the Asian markets.

Non-fuel unit cost increased 1.8%, reflecting 2023 wage increases and investment in the business, offset by reduction in the cost of disruption. Fuel cost increased by 7.4%.

Net debt fell to €6.4 billion from €9.2 billion at December 31, benefitting from seasonal working capital inflows.

Looking ahead, IAG said full year ASK growth guidance remains the same at 7%. Non-fuel unit cost is also as previously guided: to increase slightly overall in 2024.

Shares in IAG closed down 3.2% to 160.50 pence each on Thursday.

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