International Airlines Group (IAG) CEO Willie Walsh said (20-Jun-2013) Iberia's situation is "critical" and the carrier "must restructure if it is to survive". Mr Walsh noted, "The airline has become unprofitable in all its markets, including long-haul, and its high cost base means it is unable to compete effectively with other airlines, both European and Latin American." Mr Walsh added, "...I cannot stress strongly enough that the situation is critical and that none of us want to see Iberia disappear. However, that still remains a risk unless all parts of the airline work together to transform Iberia." IAG chairman Antonio Vazquez echoed the sentiment, noting, "It costs Iberia twice as much to carry each short-haul passenger than it does for the airlines with which it competes every day. Why is this? For one simple reason, its cost structure is significantly higher than that of its competitors, while its productivity is lower." Mr Vazquez noted the geographic benefit of Iberia's Madrid Barajas Airport hub, saying, "Iberia occupies a privileged geographical position for routes to and from Latin America. Its network is strategically important to IAG, and we have always seen Barajas Airport as a natural gateway to this market. We want to protect this position for the future, and therefore reiterate the urgent need to restructure." On the restructuring process, Mr Walsh called the mediated agreement reached in Mar-2013 "an important first step towards restructuring Iberia" but said that Iberia "needs to do more". Iberia Express is an example of what a lower cost base can achieve, said Mr Walsh, while adding that he is "delighted" former Iberia Express CEO Luis Gallego has taken over as Iberia CEO. [more - original PR]
IAG CEO: Iberia situation 'critical', carrier unprofitable and 'must restructure' to survive
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Airline seat growth from Europe in summer 2017 is set to stay at almost 6% for the third successive summer, according to data from OAG. This rate had not previously been reached since 2010, although this will be the fifth straight summer of growth ahead of its 10 year average rate. The summer 2017 season started on 26-Mar-2017 and, although always subject to further change, the data give a fairly clear picture.
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On the North Atlantic, always important for the profitability of Europe's leading legacy airlines, growth will be faster than its 10 year trend, but it will at least be a little slower than in the past summer. The loss of market share from the immunised North Atlantic JVs to newer and smaller competitors, including LCCs, is set to continue. As ever, the OAG capacity data provide a window into the changing structure of the airline markets from Europe.
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IAG is arguably the most financially focused European airline group in terms of the way it motivates and monitors its own performance. It is no coincidence, then, that its financial performance is now consistently stronger than that of the Lufthansa Group and Air France-KLM (although none are as profitable as the leading LCCs, such as Ryanair). IAG's financial discipline is helping to rehabilitate the airline sector's reputation with professional investors.
In 2016 IAG achieved an operating margin and return on invested capital that were, once more, its best ever. This marked its strong recovery in the years since the global financial crisis (which hit it hard), and consolidated its leadership among Europe's big three legacy airline groups. Only Vueling among the group's constituent airlines suffered from falling returns. IAG shareholders are to be rewarded with a share buyback (IAG's first, and still rare among European airlines) and an increased dividend.
However, by its own standards of success, IAG has more to do. It is not yet meeting its own margin and return on capital targets –partly because it likes to increase them when they come within reach. Its challenge will be to maintain its momentum as the airline cycle's upswing starts to fade.