DCSIMG

BA’s Spanish partner in a fight for survival as it burns £1.4m every day

Picture: Getty

Picture: Getty

  • by GARETH MACKIE
 

THE owner of British Airways has warned staff at Iberia that the Spanish airline is in a “fight for survival” as it unveiled plans to cut 4,500 jobs in an attempt to stem its losses.

International Airlines Group (IAG) said it would also cut Iberia’s capacity by 15 per cent and downsize its fleet by 25 aircraft as it battles to revive an operation that made losses of €262 million (£210m) in the first nine months of the year.

The group also said it would be forced to make deeper cuts to safeguard the airline’s future if it could not reach an agreement with unions by the end of January.

Rafael Sánchez-Lozano, the Spanish carrier’s chief executive, said: “Iberia is in a fight for survival. It is unprofitable in all its markets.”

He added: “We have to take tough decisions now to save the company and return it to profitability. Unless we take radical action to introduce permanent structural change, the future for the airline is bleak.”

Sánchez-Lozano said the company was burning €1.7m every day and had to modernise because its cost base is “significantly higher” than its main competitors in Spain and Latin America. The news came the day after IAG launched a €113m offer to take full control of Spanish low-cost airline Vueling, in which Iberia already owns a stake of almost 46 per cent.

Iberia’s troubles and the impact of superstorm Sandy, which grounded flights into and out of the US east coast last month, mean IAG expects to post an operating loss of about €120m this year.

Operating profit for the group as a whole slumped to €17m in the nine months to 30 September, down from €451m for the same period last year, as profits of €286m at BA were offset by the heavy losses at Iberia.

IAG said revenue growth at BA during the third quarter was held back as the London Olympics reduced demand for business travel, despite the airline’s sponsorship of the Games, and the group continues to face rising fuel costs, with the bill up 21 per cent year-on-year in the three months to September.

The group also owns Bmi, which it acquired from German airline Lufthansa for £172m in April, although it sold the Bmi Regional outfit to a group of Aberdeenshire businessmen for £8m the following month.

Chief executive Willie Walsh said: “The group performance is coming back to the levels seen in 2011 and this is particularly true if you strip out the Bmi losses of €31m in the quarter.

However, there remains a strong difference between the performances of British Airways and Iberia.”

Walsh said the turnaround plans were critical for the Spanish airline’s future and aimed to safeguard about 15,500 posts across the business, adding: “We will not hesitate to take the necessary steps to protect the interests of our shareholders, our customers and our employees.”

Espirito Santo analyst Gerald Khoo, who has a “sell” rating on IAG’s shares, said the problems at Iberia were “systemic” and pre-date the current economic crisis, which has sent unemployment in Spain soaring to 25 per cent.

He said: “We continue to believe the market has under-estimated the scale and nature of the challenge faced by Iberia.”

 

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