IAG CEO Willie Walsh has thrown down a challenge following  nine months of losses at Iberia and a 25% fall in third quarter profit for the group. This week he said:  “We want Iberia to be strong and successful. For too long the narrow self-interest of the few has damaged the long-term future for the many. We will not hesitate to take necessary steps to protect the interests of our shareholders.”

It looks like Iberia is going through the same medicine that British Airways went through two years ago.  The immediate changes are:

• Iberia capacity will be reduced by 15 percent next year
• 25 of Iberia aircraft will be cut
• 4,500 jobs more than one-fifth of the total workforce will be eliminated
• short-haul salaries will be reduced to the levels of low-cost carriers,
• unprofitable routes will be suspended
• Iberia Express will take over an increasing share of Iberia’s short-haul flights
• Vueling, Spain’s second largest airline will become a wholly owned subsidiary through a 113million Euro take-over bid for the remaining 54 percent IAG don’t own. Vueling announced last month that it was expanding its network in 2013 to a total of 100 destinations.

The response to Walsh words and IAG announcements by the Spanish UGT general workers union was a statement that “Iberia is being dismantled,”. IAG has already been in conflict with the Spanish pilots union SEPLA over pay and conditions. Arbitration has failed to solve this. I suspect we are going to see some stoppages and difficulties at Iberia .

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The end came quickly for Spanair and her people.- very quickly.

History

Established in 1986 as a charter airline by Scandinavian airlines with a Spanish travel company, Spanair began scheduled international flights in 1991 followed by Spanish domestic flights in 1994.  Membership of Star Alliance came in 2003. Skytrax rated them a 3 star airline.

Spanair struggled to make money and in June, 2007, SAS announced it would sell most of its 94 per cent shareholding.  SAS failed to find a buyer, however,  and finally sold 83.1 per cent for a euro to the government of the Catalonia region in Spain in January, 2009. This region gave the airline millions of euros  to keep the Barcelona-based airline, with 3,161 employees, aloft.  However, with the deteriorating financial situation of the Catalan government, that cash supply halted in January, 2011

The airline then sought a white knight. This seemed to appear in the form of Qatar Airlines and negotiations began with the airline to arrange a  buy out. These negotiations  ceased on Friday January, 27 in the morning. At 930pm (Barcelona time), Spanair released a statement: ”Faced with the lack of financial visibility for the coming months, the company has decided to cease its operations as a measure of caution and safety,”

“Shut Down”

Half an hour later, the last scheduled Spanair flight landed. The result was an estimated 22 000 passengers stranded, which rival carriers Iberia, Vueling and Easyjet are handling as best they can.

The airline immediately shut down its website (http://www.spanair.com/) and sent out a final tweet: Nos despedimos no sin antes ofrecer nuestras más sinceras disculpas a los afectados y agradecer la confianza depositada. A todos, gracias. (we say goodbye but first we offer our sincere apologies to those impacted by the closure and to acknowledge your confidence in us. To everyone, thank you.”).

Their Facebook page (http://www.facebook.com/spanair?sk=wall) carried a similar message to the Tweet along with a statement about the closure.

Its phone lines ((900 13 14 15 or +34 971 916 047 – in English), are now the only form of contact and no one is sure how long they will be open.

SAS will effectively lose SEK  1.8 billion (€191 million) as a result of the closure.

I never flew Spanair (I have flown Iberia #1 Spanish carrier in terms of passengers and Vueling #2) so I have never experienced their service or staff. Anyone able to comment on what it was like? Thoughts go to the employees and passengers impacted negatively by this sad news. Surely, they could have had more than 30 minutes warning?

Image via Wikipedia

This week saw the first anniversary of a joint business agreement between American, Iberia and British. Under this agreement, the airlines agreed to co-operate commercially on flights between the United States, Mexico, Canada, the European Union, Switzerland and Norway. The agreement  was backed up by anti trust immunity from US and European authorities.

Shortly, after the agreement was signed, in January, 2011, Iberia and BA merged into a new company called IAG (international Airlines Group), Europe’s third largest airline group and the sixth largest in the world by revenue. The airlines have combined the strong BA Asian connections with Iberia’s Latin American connections. The new company has headquarters in Madrid, and operational offices in London. BA investors got 55 per cent of the carrier and Iberia 44 per cent. The two brands have been kept. There have been some claims by Spanish unions of favoritism to the Brits.

That merger and the agreement raises the question for me about American Airlines and IAG. Its so logical for IAG to merge with American.

American has not got many places left to go. United and Delta are not possible merger partners for lots of reasons (monopoly issues, already bedding down mergers, different alliances etc). Merging with USAir would be a bad idea.  Frontier, Alaska, Hawaiian and JetBlue are too small and Southwest would not give American enough international connections. American needs to go outside of the USA to get a merger partner.

American had been surrounded by rumours of its impending bankruptcy for a couple of weeks now.  If it did declare bankruptcy, it could clean up its balance sheet.  Such a bankruptcy would therefore,  make the merger even more interesting for IAG.

The major blockage to merger is that the U.S. government caps foreign ownership  of US carriers at 25 per cent. Moving this cap to 49 per cent, would make such an international merger much more possible and attractive. It would ensure the survival of American.

It could lead to some more interesting international mergers. My friend Tony and I predicted a world with 10 to 12 mega carriers and 25 -30 regionals. Be interesting to see how right we end up!

Wonder if anyone is lobbying the US Government over the 25 per cent rule?