The story of an airline turnaround: International Airlines Group & Iberia

This post is perhaps for students of aviation rather than the travelling public at large, but it is something worth noting in any event.

We have written much in recent years about British Airways’ International Airlines Group (“IAG”) sibling Iberia, and the wildly divergent financial performance of the two airlines since the formation of IAG four years ago in 2011.

Since Iberia started to report very heavy losses in 2012, IAG has taken a number of steps to improve the performance of Iberia.

This has included a complete overhaul of its senior management by a new CEO and (after bitter and unedifying industrial action with some rather unpleasant anti-British sentiment) reaching new collective agreements with its pilots and other staff working groups.

Iberia has also undertaken a number of other initatives under its “Plan de Futuro”.

It has improved punctuality and reduced minimum connection times at its Madrid hub. It has taken delivery of new Airbus A330 aircraft with new business class and economy cabins (the later is a radical improvement on the previous cabin) and refurbished many of its existing Airbus A340 aircraft. It is also due to take delivery of more A330 and Airbus A350 aircraft.

Iberis has also improved its revenue management policies, reshaped its route network to eliminate unprofitable routes (some of which have since been reinstated) and overhauled its website. It also has also added codeshares with partners such as TAM and AeroMexico.

This has now started to bear fruit.

In IAG’s financial results for the third quarter of 2014, Iberia was not only profitable but its operating margin was equivalent to that of BA.

Iberia has also reinstated a lot of previously suspended routes such as Athens, Istanbul, Amsterdam, Stockholm, Stuttgart, Hanover, Montevideo, and Santo Domingo. In 2015, it also plans to open routes from Madrid to Hamburg, Florence, Manchester, Edinburgh, Naples, Budapest, Catania, Palermo, Verona, Funchal, London/Gatwick and Paris/Charles de Gaulle.

Further detail of the work undertaken by Iberia is contained in this investor presentation and press release from December 2014.

As we say, students of aviation may be particularly interested in the content on revenue management which indicates how the dark art of airline revenue management and demand forecasting can have a significant impact on the financial performance of routes.

Much of the work undertaken by Iberia bears a similarity to British Airways’ “Future Size and Shape” initiative of 2002 which resulted in, amongst other things, a radical simplification of the airline, the elimination of unprofitable flying, and a significant investment in driving sales and passenger servicing through ba.com

As much as Iberia and IAG can claim credit for having turned Iberia around, there is still much to do.

Whilst Iberia does serve more destinations in Latin America than any other airline, other European airlines are catching up. It is noteworthy that Iberia serves only two cities in Brazil (Sao Paulo and Rio de Janeiro) whereas Air France now flies to three and Portugal’s TAP flies to more. Iberia can also not yet claim that Madrid is a truly global hub to rival Amsterdam or Frankfurt as it does not serve any destinations in Asia.

We will be watching developments at Iberia with interest in the coming years. It is beginning to extend its presence in the UK (adding routes as mentioned above to Manchester, Edinburgh and London Gatwick) and having overhauled its image and in flight products we should expect it to be marketed with confidence to the UK.

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