MercoPress. South Atlantic News Agency

Tough competition and fuel prices knock Iberia red

Spanish airline Iberia reported a loss in the first quarter of the year compared with a 12.9 million Euro net profit last year. Soaring fuel prices and stiff competition forced the company to a loss of 441.000 Euros.

As part of its growth plans, Iberia has increased the number of flights to Latin America, some of its most lucrative routes. But in the domestic and European market, Iberia has cut back the number of flights it operates. However even with less frequencies and because of fierce competition from budget airlines and a new high-speed train link between Madrid and Barcelona, Iberia has seen the percentage of empty seats on those flights increase. Tough competition means it will be difficulty for Iberia to raise ticket prices sufficiently to offset higher fuel costs, analysts said. The price of jet fuel is directly linked to the price of crude oil, which has been on a record breaking run in recent weeks. A barrel of US crude cost 66 US dollars a barrel at the end of the March 2007, but a year later had risen to beyond U$S 100, and last week hit a high of almost U$S127. Furthermore consolidation in the airline industry is expected to continue as firms look to cut costs, and the "open skies" agreement between the US and Europe will allow more budget airlines to fly across the Atlantic. Nevertheless last November, British Airways pulled out of plans to increase its 10% stake in Iberia, signaling it no longer wished to take over the firm. Iberia shares have fallen about 40% since the deal failed to materialize.