British Airways parent International Consolidated Airlines Group (IAG) has pledged to push through a plan to shrink Spanish arm Iberia by 15% and deliver a profit rebound this year following a group-wide loss last year.
Iberia, where workers are staging strikes over as many as 3,807 job cuts, must adapt to survive, IAG CEO Willie Walsh said on Thursday. Trade unions engaged in nonbinding mediation talks have until March 12 to reach a deal, he said.
Europe’s third-largest carrier had an operating loss of €23m last year, excluding one-time items, versus earnings of €485m a year earlier. While that beat estimates thanks to a €347m profit at British Airways, spurring the stock to its biggest gain since July 30, the result was undermined by Iberia’s €351m loss.
This is all about the core unacceptable performance of Iberia which must be tackled in a permanent and structural way, Mr Walsh said on a conference call. Losses at the unit, where the Irishman is seeking a €600m earnings turnaround by 2015, go well beyond Spain’s economic woes, he said.
That compares with a 15% gain at Air France-KLM Group, Europe’s biggest airline, which posted a €300m full-year operating loss last week.
IAG said it was expecting an operating result this year that would beat 2011 €485m profit, excluding any further Iberia-related hits from additional restructuring that Mr Walsh said was under consideration. The company booked a €202m restructuring cost against the Madrid-based unit last year, plus a €343m impairment charge.
Mr Walsh said that a lower figure of 3,147 given for firings is the total that might be viable if linked to productivity gains and other measures. He declined to say if the figure was the minimum acceptable level of cuts. Strikes at Iberia, which commenced last week and continue this month, are meanwhile costing the airline about €3m a day.
The Spanish overhaul includes the transfer of some domestic and short-haul flights to Iberia Express, which was established last year with less-generous employee contracts and posted a profit for 2012. That stunning performance shows what can be done with the right focus, according to the CEO.
IAG has also made a bid for the 54% of Barcelona- based Vueling Airlines SA (VLG) it doesn’t already own in a further move to lower costs in the country. Vueling almost tripled its net income to 28.3 million Euros in 2012 as the passenger total climbed 20% to 14.8 million, it said.
Excluding the purchase of BMI from Germany’s Deutsche Lufthansa AG (LHA) on April 20, which added money-spinning flights at BA’s London Heathrow hub, company-wide traffic rose 2.6%. The passenger total increased 5.6% to 54.6 million.
Savings from the 2011 merger of British Airways and Iberia which formed IAG reached 313 million Euros last year, beating a target of 225 million Euros. Still, revenue and cost synergies alone are not enough, Walsh said, and must “go hand in hand with permanent structural change.”