On Friday, Spanish carrier Iberia announced that it will be letting go 4,500 staff in order to save itself from collapse. It also warned that more people could be let go following the economic crisis. Parent group International Airlines Group (IAG) said it had a comprehensive plan that would save the airline and return it to profitability after record losses. Then it revealed that they would have to cut nearly 25% of the airline’s workforce in a bid to safeguard some 15,500 other staff across the carrier’s operations.
Unions say salaries will also be slashed by between 25% and 35% as part of the plan. SEPLA union’s Justo Peral said that the job-cutting plan will completely deplete Iberia. He questions why all of the cuts are being made in Spain if Iberia is supposed to be part of a consolidated group.
IAG added that it has set a 31 January 2013 deadline to reach a deal with unions over the matter. If an agreement can’t be reached, a more significant cut in Iberia’s operations and more staff reductions will have to be made to secure the long-haul traffic flows in Madrid and guard the future of the company. To stem cash losses by the middle of next year, the carrier will cut network capacity 15% and reduce its fleet of 104 planes to 79 (including five long-haul aircraft). However, the airline has many advantages –a great geographical position to serve Latin America, historical ties, the ability to grow for the long-term and a strong brand.
Iberia chief executive Rafael Sanchez-Lozano says that Iberia is fighting to survive. The company is unprofitable in every market it operates in. They have to make tough decisions now to save the airline and return it to profitability. Unless radical measures are taken to introduce permanent structural changes, the carrier has a bleak future. However, this comprehensive strategy gives them a platform to grow and turn around the business. He added that Iberia has been impacted by the Spanish and European economic crisis, but the company’s problems had started before the nation’s current difficulties and are systemic.
In a separate announcement, IAG reported a 24% drop in net profits during the third quarter. Profits after tax declined from €267 million to €202 million. Iberia had a €262 million operating loss for the nine months to 30 September, but the financial performance at British Airways (a subsidiary of the parent company) offset this with a €286 million operating profit. Group chief executive Willie Walsh said that they want Iberia to be successful and strong. This turnaround strategy is vital for the airline and the future of Spain, as a strong and profitable airline can create jobs and give tourism a boost.
Analysts have criticised Walsh’s move to acquire two loss-making carriers in less than two years. Aside from merging with Iberia, he also took over regional carrier bmi for £172.5 million earlier this year. However, he defends his decision, saying that the group would save €560 million by 2015 by merging the three airlines. This is a critical part of profitability for British Airways.
Meanwhile, the staff cuts and financial results were announced the day after IAG revealed that it has launched a bid to fully take over Vueling Airlines for €113 million. Iberia already owns nearly half of the budget carrier. This comes as Vueling seeks a network expansion to 100 airports, and Frankfurt and London are two of its new destinations.