ATW Daily News

Iberia to launch new feeder airline, cut more costs as it faces full-year loss

Monday October 26, 2009

Describing the current situation as "unsustainable," Iberia's board last week approved a strategic plan that includes creation of a new short/medium-haul carrier, long-haul expansion (mainly to/from Latin America.), an additional €37 million ($55.5 million) annual reduction in overhead costs over the next two years and a "radical" change of approach designed to generate more revenue.

The strategy, called Plan 2012, will follow a 2009-11 initiative aimed at boosting operating profit by €450 million through cost cuts and efficiency improvements (ATWOnline, Aug. 31).

"The airline industry has never experienced such a dramatic situation. It is essential for us to use imaginative means to transform Iberia into a sound and viable project," COO Rafael Sanchez-Lozano said. Iberia Group posted a consolidated net loss of €165.4 million in the first half and expects to report a full-year deficit for the first time in 14 years. Six-month operating revenue plunged 18.9% and unit revenue dropped 13.4% year-over-year.

The new short- and medium-haul airline will operate as an independent entity within the group. It will not be a point-to-point LCC like Vueling Airlines, in which IB has a 45% share, but a full-fledged network carrier offering a service similar to IB's and feeding the profitable long-haul network through its Madrid hub. IB aims to have it operating in 2011.

"Given the difference in the performance and competitiveness of Iberia's long-haul business in contrast to the short- and medium-haul routes, the company is posing two well-defined strategies that allow it to be larger while simultaneously cutting losses," it stated.

"The goal is to grow Iberia, not shrink it so it becomes an easy takeover target," a spokesperson told ATWOnline. "We have a leading market position on the Europe-to-Latin America routes and we want to maintain and grow this. We have, however, a structural problem in our domestic and European operations. Thus we are proposing a total different model, with markedly lower operating costs and no 'legacy' work practices, which will allow us to compete with other carriers and the high-speed train."

The spokesperson acknowledged that "many things have to be solved," especially union opposition, "although the new strategy is about securing jobs." IB Chairman Antonio Vazquez started discussions with union representatives Friday.

Meanwhile, IB is facing flight disruptions today and Tuesday owing to a two-day strike called by the CTA and SITCPLA cabin attendant unions. Fights operated by Vueling, Iberia Regional/Air Nostrum and other airlines using Iberia codes will not be affected, IB said. Flights to/from the Canary and Balearic Islands, plus nearly all long-haul flights, also will operate normally.

by Cathy Buyck

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