As the BA-Iberia merger moves to a conclusion, Manuel López Colmenarejo, a senior executive with the Spanish airline, predicts more consolidation. He talks to ABTN about what 2010 will bring for Iberia and for the aviation industry.
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Manuel López Colmenarejo,
Iberia
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Passengers should expect to see more consolidation in the near future, according to Manuel López Colmenarejo, Iberia's commercial and clients deputy general director.
"Some smaller carriers are going to be incorporated into larger carriers, but we believe more consolidation is going to be done with carriers from outside Europe - from America or other parts of the world.
"Once the three big carriers in Europe are clear, more is going to come in the United States."
For the BA-Iberia merger, it is still early days, Mr Colmenarajo told ABTN, but he is 97% certain it will go ahead.
The next milestone comes in February, when joint plans between the management teams will be agreed. By June, the legal process should be finalised, with the signing ceremony to take place in October 2010.
Mr Colmenarejo is also confident that the anti-trust immunity that Iberia, British Airways and American Airlines are seeking from the US Department of Transportation will be given soon. "We are disappointed it still hasn't been granted, but things are moving. We are putting remedies in the basket, in terms of slots and other things, so the negotiations are advancing. Contact with the European commission is also very frequent right now."
The merger between BA and Iberia will deliver, the airlines say, some €400m in annual synergies, to the benefit of both carriers.
Iberia has forecast its first loss in 15 years for the current financial year, while BA posted an operating loss of £111m between April and September. Over the same period in 2008, BA made £140m in profit. More recently the UK national carrier has posted a loss of £292m for its third quarter and forecast an annual loss for the second year running. Iberia has grounded five of its own aircraft and has not renewed the lease on a further five A320s. The airline owns around a quarter of its long haul fleet and fewer than 10% of its short and medium haul fleet.
While Mr Colmenarajo believes the worst of the crisis is over, Iberia is unlikely to make a profit until 2011. "Our target is to equalise in 2010," he said. In October and November Iberia saw a rise in passenger demand in domestic routes to Madrid, and other segments are moving closer to growth, he said. But he believes short and medium haul revenue is unlikely to return to previous levels.
He said: "Things are not going to be as positive as in the past. Passenger demand, I am sure, is going to grow in the coming months, but unit levels are more difficult, because of the level of competition. "Customers in short and medium haul are familiar with certain prices, so this is very difficult to change. That's why we need to do something structural."
In a bid to become more competitive in the short and medium haul market, Iberia is setting up a new airline, with a new cost structure.
"The assumption is that with the current cost base, Iberia cannot continue to be competitive in short and medium haul. The idea is to build from the ground up a new company with another level of costs, particularly in terms of the cabin crews and pilots - different costs, different conditions, more flexibility."
Iberia has dropped any routes which do not feed directly into its hub Madrid Barajas Airport, such as Barcelona to Seville, leaving these to budget airline Vueling ( in which Iberia has a 45% stake) to operate. "Vueling is doing that because we were not able to continue. Iberia can't eliminate short and medium haul because 70% of this traffic is connecting onto long haul flights [via Madrid].
"But, in this feeding traffic we need to reduce costs, so we need the new airline. It will be very much connected with the brand of Iberia, because passengers who buy a long haul ticket with Iberia expect to travel with us all the way."
For the same reason, despite a fall in demand for business class on short and medium haul, the premium cabin is unlikely to be dropped. "I believe that the current concept is going to stay. For a network carrier it's important to offer business class all the way."
Long haul is also giving cause for concern, said Mr Colmenarejo, especially on Iberia's key routes to Latin America. Iberia currently has nearly 60% of the market share for flights from Spain to South America."In
long haul we believe there are too many airlines operating out of Spain. I don't think it's feasible that some airlines can continue," he said.
To preserve its 24% market share of business class passengers to Latin America, Iberia has taken the decision to offer a new fully flat product in Business Plus. By removing one row from the business class cabin and changing the settings, its current Business Plus seats are being extended to fully flat. "We needed to open the gap between us and the competition," said Mr Colmenarejo. "We now have fewer passengers in business class, so it's cheaper for us to do it now."
In 2012 a new Business Plus seat is due to be launched, but no details have yet been announced. "We are analysing all the options available," said Mr Colmenarejo. "You need to cement your product, and to invest more than ever in the business class concept," he added.
Iberia has also updated its premium lounges in Madrid. "We have to do whatever is required to protect our competitive position in the business class long haul segment, even in a crisis. It is about pure economics, but it's also about positioning the Iberia brand."
With plans for a new airline, a new business class product, the merger with BA and possible anti-trust immunity from the US, 2010 looks to be a year of change for Iberia - and for European aviation.