International Airlines Group (IAG) has announced massive job and capacity cuts for , saying the Spanish subsidiary is in a “fight for survival.”
Iberia will reduce capacity by at least 15% in 2013 and ax 4,500 jobs. More reductions will come if management cannot reach new collective bargaining agreements with staff by Jan. 31.
“If we do not reach consensus we will have to take more radical action,” says Iberia CEO Rafael Sanchez-Lozano. IAG CEO Willie Walsh says that “for too long the narrow self-interest of the few has damaged the long-term future for the many.”
IAG revealed the details of its Iberia transformation plan at its Capital Markets Day, along with third-quarter results.
As part of the plan, the Iberia fleet will be cut by 25 aircraft – five long-haul and 20 short-haul jets. Among the routes taken out of the network are long-haul services from Barcelona to Miami. The airline’s worst-performing 13 routes are making a combined €100 million ($127.2 million) per year, and all of them will be discontinued.
The changes do not only affect the airline operation, but also Iberia Maintenance. IAG says nonprofitable third-party maintenance will be stopped, but it will “retain profitable ground handling services outside Madrid.”
The measures are aimed at stopping Iberia’s cash losses by mid-2013, and should lead to a profitability turnaround of €600 million by 2015, IAG says.
Iberia is currently “unprofitable in all of its markets,” Sanchez-Lozano says. “We have to take tough decisions to save the company and return it to profitability. Unless we take radical action to introduce permanent structural change, the future of the airline is bleak.”
He adds that Spain’s economic crisis has impacted Iberia, but its “problems are systemic and pre-date the country’s current difficulties.” According to its CEO, Iberia is burning through €1.7 million per day. “Time is not on our side,” he warns.
IAG has also decided to make an offer for 100% of the shares in low-fare airline Vueling, in which Iberia already owns a 45% stake. Vueling is expected to take over more of the group’s Spanish short-haul operations, particularly if negotiations between Iberia and its pilots over new, lower-cost collective bargaining agreements fail. The Vueling deal is to be closed in the second quarter of 2013.
Iberia suffered a €262 million operating loss in the first nine months of the year and only broke even in the seasonally strong third quarter. Overall, IAG made a €301 million operating profit in the third quarter, reflecting the stark performance difference between Iberia and its sister company. IAG Chairman Antonio Vazquez says that after its restructuring over the past few years, BA is now “fit for growth.” The airline will take delivery of its first and next year.