- CAPA Analysis
- Schedule Analysis
- Route Maps
- US Route Data
- Annual Reports
- Print Summary
- IATA Code
- ICAO Code
- Corporate Address
- Calle Velazquez 130
- Main hub
- Madrid Barajas Airport
- Spain and Canary Islands
- Business model
- Full Service Carrier
- Domestic | International
- Joined Alliance
- Association Membership
- Codeshare Partners
CSA Czech Airlines
Royal Air Maroc
Ukraine International Airlines
Iberia, a subsidiary of publicly-listed International Consolidated Airlines Group (IAG), is the national carrier of Spain. Based in Chamartin, Madrid, Iberia’s network includes domestic services within Spain as well as regional and international services throughout Europe, North America, Central and South America, Africa and the Middle East. Iberia is a founding member of the oneworld alliance.
Location of Iberia main hub (Madrid Barajas Airport)
International Airlines Group share price
1,578 total articles
100 total articles
International Airlines Group: 2015 target raised thanks to BA & Vueling; Iberia still has work to do
As CAPA predicted, IAG increased its operating profit target for 2015 at its recent capital markets day. This reflects better progress than previously expected at British Airways, the integration of Vueling into the group and additional growth at both BA and Vueling.
The group’s target has been raised from EUR1.6 billion to EUR1.8 billion. British Airways’ own 2015 operating profit target has been raised from GBP1.1 billion to GBP1.3 billion. This would bring BA to an operating margin in the region of its best-ever level of 10%.
The increase in the BA target, translated into EUR, is more than the increase in the group target. The implicit reduction in the Iberia target increases the pressure on its restructuring programme to create a competitive cost base. Nevertheless, the group as a whole now faces the real prospect of generating a return on capital ahead of its cost of capital.
In 3Q2013, IAG continued the turnaround in its operating result that began in 2Q2013. All three of its main brands – British Airways, Iberia and Vueling – saw an increase in their result from the same quarter of 2012. The improvement was mainly driven by healthy unit revenues, although these were diluted by currency effects, and the addition of LCC Vueling in the full quarter for the first time.
It seems that IAG’s prediction that Iberia’s restructuring programme would start to bear fruit in the second half of the year is being proven correct.
Moreover, new FY2013 guidance, for an operating result of around EUR740 million, is ahead of IAG’s previous target, even allowing for the Vueling acquisition. After its 2Q2013 results, we asked if that was a turning point for IAG? At the moment, it would seem that the answer is yes.
Following dramatic declines in airport passenger numbers in 2012 and 2013, Spanish airports operator AENA has decided to introduce an airport charge discounting scheme to offer incentives to airlines to grow their traffic in Spain once more. With plans being formulated to privatise Spanish airports, the success of this initiative will be closely watched by both industry participants and potential investors.
In this report, we examine traffic trends at AENA and consider whether they have been affected by higher airport charges. Our analysis suggests that there is a clear link and so action to reverse falling traffic numbers through lower charges seems a logical step.
The questions then are whether the discounts offered will have the desired effect and how sustainable will be any resultant growth in passenger numbers.
Ryanair is the biggest carrier in Spain by passenger numbers and its CEO Michael O’Leary has called AENA’s discount scheme “almost unachievable”.
Air Europa has been talking up its ambitions in Latin America. It has firm orders for eight Boeing 787 aircraft, but its president Juan Jose Hidalgo recently said it will eventually have up to 22 of the type by 2020-2022. He plans to deploy them on Latin American routes. These could include Mexico City, Bogota, Cartagena and Quito.
Currently, Iberia is the leader on all three routes to Latin America where it competes with Air Europa and is number one overall on Spain to LatAm. However, Air Europa has been picking up routes dropped by its larger rival and Mr Hidalgo says it plans “to fly all the destinations that Iberia flies to”. The pendulum is swinging towards Air Europa in much of the region outside Central America. Iberia has abandoned the Caribbean altogether.
Air Europa has a unit cost advantage and ambitions to grow. This poses a credible threat to Iberia’s Latin American network. Iberia’s cost restructuring will have to succeed if it is to avoid a further dulling of its brightest network jewel.
On 26-Sep-2013, shareholders in IAG will be treated to a rare event: the opportunity to approve a major aircraft order for the first time in several years. In fact, rather like the proverbial buses after a long wait, there are three of them at the same time. British Airways is getting 787s and A350s and Vueling is getting A320s (including A320neo), while Iberia is getting used to being the poor relation and must prove it can return to profit before any new orders.
After many years of very few new aircraft deliveries (including the years prior to the creation of IAG in 2010), IAG will take around 20 every year until the start of the next decade. This will require it to sustain levels of capital expenditure not seen by the combination of BA and Iberia since the 1990s. A sustained rise in profits will also be needed.
IAG returned to an operating profit in 2Q2013, after a loss in the same period a year ago and a widening of its loss in 1Q2013. BA’s operating profit grew sharply and Iberia’s operating loss was cut by more than 60%. This was the first quarter in 11 that saw the Spanish carrier post a year-on-year improvement in its operating result. Iberia’s return to profit will depend, among other things, on its management negotiating labour productivity gains under its transformation plan.
IAG’s non-fuel costs per ASK were broadly stable in 2Q (excluding newly acquired LCC Vueling) after rising in 1Q, supporting IAG’s contention that the restructuring programme would start to bear fruit in the latter part of the year. Moreover, unit revenue trends remain positive under tight capacity control. In Vueling, IAG now owns Europe’s third largest LCC, putting it ahead of rivals Air France-KLM and Lufthansa in the scale (and cost efficiency) of its low-cost operations. Has IAG reached a turning point?
Great news! CAPA now offers email and phone contact functionality through its partnership with Gooey. Corporate access for this feature is USD1000 per annum.