IAG unveils massive restructuring drive
BA performs well but fleet reduction, job cuts imminent at struggling Iberia
By Gaurav Sharma | CFO UK | Published 10:26, 09 November 12
British Airways-owner IAG unveiled wholesale restructuring plans on Friday at its Spanish carrier Iberia in a bit to halt the latter’s cash losses and raise profitability.
Earlier, IAG announced a third quarter operating profit of €270 million, (before exceptional items, €301 million excluding bmi against €363 million) noted over the corresponding quarter last year.
Over the last three quarters, IAG made an operating profit of €17 million with British Airways posting an operating profit of €286 million but Iberia recording an operating loss of €262 million.
IAG said Iberia would be cutting its fleet of 156 aircraft by 25 and reduce 15 percent of its network capacity. The Spanish flag carrier will now be focusing on the most profitable routes. IAG also announced 4,500 jobs would be cut at Iberia.
The parent company is hoping to halt cash losses at Iberia by mid-2013 and raise profits by a minimum of €600 million. The airline group’s fuel unit costs were up 15.4 percent for the quarter (1.6 percent at constant currency). Additionally, non-fuel unit costs, before exceptional items, were up 8.5 percent for the quarter (up 1.6 percent at constant currency).
IAG chief executive Willie Walsh said, "The group performance is coming back to the levels seen in 2011 and this is particularly true if you strip out the BMI losses of €31 million in the quarter. However, there remains a strong difference between the performances of British Airways and Iberia."
He added that the full integration of bmi into British Airways was completed last month and has been achieved smoothly and efficiently.
"Iberia continues to cause concern and we are announcing today a restructuring plan to introduce permanent structural change across the airline. Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future," Walsh added.
While cuts are imminent, IAG said the restructuring would safeguard 15,500 jobs at the airline. However, the restructuring plan does include permanent salary adjustments in order to achieve what the company described as a "competitive and flexible cost base."
IAG said Iberia’s problems were systemic and pre-date Spain’s current economic problems. The airline group has set a deadline of 31 January 2013 to reach an agreement with Spanish unions over the cuts.
The company also forecasted an overall operating loss of €120 million for 2012 excluding any costs associated with the Iberia restructuring. It added that the impact of storm Sandy in the US was likely to trigger further losses in the remaining three months of the year.
On Wednesday, IAG published its latest passenger figures for October which indicated that traffic rose by 6.2 percent at British Airways, while at Iberia traffic was down 3.7 percent from the same month last year.
On Thursday, IAG announced that it would pay €113 million to buy the remaining 54.15 percent stake in Spanish budget airline Vueling that it did not already own. Commenting on the move, Walsh said, "The acquisition of Vueling by IAG would be good for Spain and create new Spanish jobs."
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