When British Airways and Iberia merged in January 2011 under the umbrella of International Airlines Group, the logic seemed clear.
BA was behind its rivals Air France-KLM and Lufthansa in the European airline consolidation game. BA and Iberia had largely complementary long-haul networks (BA being focused on North America and Iberia serving mainly Latin America). BA had no scope for growth at a slot-constrained Heathrow airport and had to look elsewhere for expansion.
However, since the merger the fortunes of the two airlines have diverged dramatically. With the London market remaining resilient, for now at least, and the backbone of BA’s financial health, premium long-haul traffic, staging a strong recovery after a dramatic post-Lehman Brothers collapse and a deep recession in Spain, the different between the two airlines’ financial performance is stark.
In the year to 31 December 2012, BA made an operating profit of €347m, whereas Iberia made an operating loss of €351m. Furthermore, with IAG having acquired bmi, there is now significant scope for growth for BA at Heathrow.
There has been an urgency to restructure Iberia and IAG’s attempts to do this have met with significant resistance, specifically from the Iberia pilots union, SEPLA.
The most controversial aspect has been the establishment of a separate short/medium haul carrier, Iberia Express. This specific matter went to arbitration, which has resulted in a cap in the growth of Iberia Express, much to the frustration of IAG.
Further moves by IAG to restructure Iberia resulted in long-running industrial action by staff and IAG having to accept a proposal of mediator.
IAG has made it clear it was not satisfied with this and has pressed for radical productivity improvements, with the threat of a continued reduction in the scale of Iberia’s operations if no agreement is reached and the promise of expansion if there is agreement.
After months of negotiations, IAG has today confirmed that it has reached an initial agreement with SEPLA resulting in radical productivity improvements.
This should mean that IAG will convert delivery slots it has obtained for Boeing 787 and Airbus A350 aircraft into firm orders for Iberia, thus allowing for an expansion of its long-haul network.
On that theme, it will be interesting to see if Iberia expands its long-haul network beyond The Americas to Asia, thus making Madrid airport, which Iberia has been quietly improving as a hub, a gateway between Asia and Latin America. For travellers based in London, it should provide more one-stop connections to Latin America via Madrid, as an alternative to Miami.