As previously mentioned, International Airlines Group published its 1st quarter results in Friday. On the morning of the announcement, as per standard protocol, it held a webcast for analyst and the question and answer session that follows provides a lot of useful insight into current strategic developments at the airline group.
Here is a summary of some points of interest from the call:
International Airlines Group
– IAG as no immediate plans to add any further airlines to the group. In truth, this is the standard line by IAG. However, we can say with confidence that airlines such as Poland’s LOT that have been the subject of takeover speculation, will not be of interest to IAG.
– Of BA’s operating loss of £68m for the quarter, approximately £35m could be attributed to bmi.
– British Airways claims to have not experienced any impact from the entry of Virgin Atlantic onto UK domestic routes which Willie Walsh dubbed “Big Red”.
– In spite of strong revenue performance on North Atlantic routes, BA has no immediate plans to add capacity, beyond using an Airbus A380 to the Los Angeles route.
– BA remains committed to serving Sydney following the decision by Qantas to end the long-standing joint-business in favour of a joint venture with Emirates. Although the route is understood to be loss-making, Willie Walsh suggested that serving Australia is of strategic importance to the airline. BA is likely to announce more codeshares to Australian cities in addition to the recent codeshares with Cathay Pacific from Hong Kong. I expect that recent and prospective Oneworld entrants Malaysian Airlines and Qatar Airways are highly likely to be codeshare partners.
– There were a lot of questions about Iberia and the restructuring programme, specifically the arbitration process with enabled Iberia to impose salary cuts and headcount reductions (albeit on more generous terms than originally intended), even though the pilots union has not voted in favour of the arbitrator’s decision. IAG claims to have received legal advice that the lack of a vote by the pilots union does not impinge on Iberia’s ability to impose salary cuts and reduce headcount.
– Turning to another matter that went onto arbitration, which is Iberia Express. IAG has appealed the decision of the arbitrator which effectively capped the growth of Iberia Express to the Supreme Court. In the interim, there will be no expansion of Iberia’s short and medium haul network.
– It was clear from comments made by Willie Walsh on the call, that IAG has not been satisfied with the commercial strategy of Iberia, specifically the focus by Iberia on seat factors/market share instead of unit revenue and revenue quality which BA has been doing for well over a decade. In my view, it has to be a fair question of IAG management why they have not got a handle on this much earlier given that revenue management commercial policies should have been well known by know and covered during the initial merger due diligence process.
– IAG is expecting to provide investors with an update on the progress of the restructuring of Iberia next month.
– Willie Walsh was asked about the possibility of Vueling expanding in the UK market, specifically at London Gatwick. Whilst he praised the current performance of BA at London Gatwick, he made it clear that Vueling would have autonomy regarding its expansion plans and it is likely the UK will feature in its plans. Willie Walsh had no comment to make about the possibility of acquiring the remaining 9-10% of Vueling shares it does not own.