IAG Axes Jobs In Iberia's 'Fight For Survival'

November 9, 2012

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IAG will cut almost a quarter of Iberia's workforce and reduce capacity to save the loss-making Spanish flag carrier and restore group profitability.

Iberia is Europe's leading carrier to Latin America, but it has been battling against increased competition from low-cost airlines and high-speed trains, union disputes and Spain's deep economic crisis. It is bleeding cash as revenues fail to cover its high operating costs.

"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," IAG chief executive Willie Walsh said in a statement on Friday.

IAG, which was formed by the 2011 merger of Iberia and British Airways, said it hopes the restructuring plan will improve profits by at least EUR€600 million (USD$764 million) in the next three years.

The group posted a 96 percent fall in nine-month operating profit on Friday, to EUR€17 million, pulled lower by high fuel costs and a EUR€262 million operating loss at Iberia.

British Airways, meanwhile, posted a nine-month operating profit of EUR€286 million.

In addition to the job cuts, IAG said it would cut capacity in Iberia's network by 15 percent in 2013, focusing on profitable routes and downsizing its fleet by 25 aircraft.

"Although radical changes are proposed at Iberia, this reflects the scale and extent of the problems there," Espirito Santo analyst Gerald Khoo said.

"The problems are systemic and pre-date the current economic crisis and we continue to believe the market has underestimated the scale and nature of the challenge faced by Iberia."

IAG said it expects to make an operating loss of about EUR€120 million in 2012, after trading losses related to its bmi subsidiary, which it bought this year, and exceptional items.

UNION FIGHT

IAG was holding simultaneous meetings on Friday to present its new viability plan: one with investors in London and another with unions in Madrid, where Friday was a public holiday.

The company said that it would reduce Iberia's 21,000-strong workforce by 4,500, discontinue non-profitable parts of its maintenance business and all of its handling operation outside Madrid unless it could improve profit margins.

Iberia chief executive Rafael Sanchez-Lozano said the airline is losing money in all of its markets. "We have to take tough decisions to save it and become profitable again," he added.

Sanchez-Lozano said the company, which also plans to cut wages to make its cost base more competitive, is losing EUR€1.7 million a day.

Spanish unions had been expecting up to 7,000 layoffs after Iberia's creation of low-cost carrier Iberia Express in March to compete with budget rivals such as Ryanair and easyJet on short and medium-haul routes.

IAG has been in conflict with Spanish pilots union SEPLA over pay and conditions for the past year. The Spanish government appointed an arbitrator but the situation has yet to be resolved.

This has resulted in uncertainty over IAG's ability to continue to grow Iberia Express and may have prompted IAG's decision on Thursday to launch a bid to buy the rest of low-cost airline Vueling.

IAG has set a January 31 deadline to reach an agreement with unions over the Spanish job cuts. It said it wants the plan to be in place by the summer 2013 tourist season.

(Reuters)