IAG to slash Iberia work force by 3´800 as it battles competition

IAG, Europe's fourth-biggest airline group by market value and owner of British Airways, yesterday reported a 2012 operating loss of 613 million euros ($804 million), including restructuring costs at Iberia, compared to the 444 million euros profit it posted a year earlier.

The results were hit by a 6.1 billion euros fuel bill, 20.4 percent higher than in 2011, and a 351 million euros operating loss at Iberia. Iberia, Europe's biggest carrier to Latin America, has been battling competition from low-cost airlines and high-speed trains, labour disputes and Spain's deep economic crisis and bleeding cash as revenue fails to cover high operating costs.

IAG said it would move on with plans to cut jobs at Iberia as part of a restructuring plan to return the loss-making airline to growth. IAG also plans to cut capacity by 15 percent this year, mainly at Iberia, by focusing on profitable routes and reducing its fleet by 25 aircraft.

Shares in IAG, which have risen 20 percent in 2013, reacted positively to the news and were 5 percent up at 233.1 pence early yesterday, valuing the group at around 4.4 billion pounds.

BA, meanwhile, delivered an operating profit of 347 million euros, boosted by growth in business and first-class traffic, especially on transatlantic routes. “British Airways is seeing the benefit of permanent structural change and Iberia needs to adapt to survive,” IAG Chief Executive Willie Walsh told reporters.

Walsh said its 2013 performance hinged on the outcome of the Iberia restructuring, and associated costs. Subject to these, IAG said it expects to report an operating result close to the 485 million euros profit it delivered in 2011.

IAG, whose 2012 revenues rose 11 percent to 18.1 billion euros, hopes the restructuring of Iberia will improve profits by some 600 million euros in the next three years. Without taking the Iberia restructuring charges and impairment costs into account IAG reported a 2012 operating loss of 68 million euros, better than an average analyst forecast for an 82 million euros loss, according to Thomson Reuters data.

AGGRESSIVE “We welcome the aggressive tone being taken by the management on Iberia ... we see Willie Walsh winning the battle on driving the turnaround,“ said Investec analyst James Hollins.

So-called legacy airlines such as IAG have been struggling with high fuel costs, weak consumer confidence, the euro zone crisis and tough competition from Gulf carriers.

Some ceased operations last year, while others have cut routes, leaving gaps that low-cost airlines have been quick to exploit.
Air France-KLM is renegotiating pay and conditions with airline staff, cutting thousands of jobs and has restructured its network to cope, while Germany's Lufthansa withheld a dividend for the second time in three years, choosing instead to bolster its fleet and fund future restructuring.

Walsh said IAG, which is due to receive the first of its 24 Boeing Dreamliner jets in May, expects the delivery to be pushed back but backed the U.S. planemaker to fix the problems.

The Dreamliner fleet has been grounded for the past six weeks due to problems with battery failure.