British Airways owner International Consolidated Airlines Group, otherwise known as IAG, has revealed details of a 'transformation plan' to get its loss-making Spanish airline Iberia back on track, which includes the laying off of 4,500 employees.
To accompany its third-quarter results, the company said that a restructuring is needed to "save" Iberia and return it to profitability.
Among the plans which will be funded from Iberia's internal resources, IAG intends to: stem Iberia's cash losses by mid-2013; implement a turnaround in profitability of at least €600m from 2012 levels; cut network capacity by 15% in 2013 to focus on profitable routes; and downsize fleet by 25 aircraft.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Some 4,500 jobs will be erased in an effort to "safeguard" around 15,500 other posts across the airline. "This is in line with capacity cuts and improved productivity across the airline," IAG said.
The company said that it has until the end of January next year to reach agreement with trade unions. "If agreement is not reached, deeper cuts and a more radical reduction in the size and scale of Iberia's operations will take place to secure the natural long haul traffic flows at Madrid and safeguard the company's future."
In a statement, Iberia's Chief Executive Rafael Snchez-Lozano said: "Iberia is in fight for survival. It is unprofitable in all its markets. 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. However this plan gives us a platform to turn the business around and grow.
"The Spanish and European economic crisis has impacted on Iberia, but its problems are systemic and pre-date the country's current difficulties. The company is burning €1.7m every day. Iberia has to modernise and adapt to the new competitive environment as its cost base is significantly higher than its main competitors in Spain and Latin America," he said.
The news comes just one day after IAG confirmed it was making a €113m offer to buy up the remaining 54.15% interest of Spanish low-cost airline Vueling that it did not already own.
Chief Executive Willie Walsh said: "Iberia continues to cause concern and we are announcing today a restructuring plan to introduce permanent structural change across the airline. Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future."
Iberia weighs on third-quarter profits
Total revenue rose 12.6% year-on-year in the third quarter (three months to September 30th), from €4.490bn to €5.056bn, as passenger revenue increased strongly, up 14.1%.
However, profit before tax from continuing operating declined from €316m to €221m. This means that for the first nine months of the year, the company registered a loss before tax of €169m, compared with a profit of €355m in the same period of 2011.
Also weighing on the bottom line were fuel unit costs which rose 15.4% in the quarter and €31m of losses from recently-acquired bmi, which was fully integrated into British Airways last month.
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."
Cash for the first nine months of the year was down €170m at €3.565bn, while net debt rose €360m to €1.508bn.
