International Airlines Group (IAG) - the world’s largest airline group and holding company to Spain’s Iberia airline - is developing a contingency plan for Spain’s possible withdrawal from the Eurozone.
A crisis management group is reviewing possible impact and will seek input from external advisors.
IAG intends to completely restructure its under-performing Spanish carriers to address structural issues and cut losses. Heavily impacted by the European financial crisis, Spain is predicted to leave the Eurozone to restructure its external debt.
According to CEO Willie Walsh, IAG must consider the “commercial, administrative, systems and people issues to be addressed” in the event of an exit.
Iberia: Losses, Restructuring Plans
Iberia's poor performance has caused internal risk exposure for IAG. IAG reported a $482 million pre-tax loss in the first half of 2012 linked to Iberia's operating loss of $325 million.
In the year-earlier period, IAG had posted a $48 million pre-tax profit. According to Walsh, most of Iberia's problems are “deep and structural,” which is why IAG is pursuing major cost cuts and a complete restructure of Iberia.
IAG has warned that a weakened Spanish economy may result in a small operating loss for 2012. To prepare, it will thoroughly “review of all parts of Iberia's business, from A to Z”. Plans for the restructuring are expected to be unveiled in September. Although IAG has yet to announce any job losses, the reshaping of Iberia will result in cuts over an extended period.
Iberia's competitiveness is largely dependent on routes to growing economies in Latin America, and as its full operations are analyzed, IAG will have to keep in mind growing competition in the region.
Walsh anticipates competitors will also cut costs and create contingency plans. Air France and Lufthansa are currently adding capacity to routes in Latin America. In addition, Lufthansa posted a 28% operating profit after introducing its efficiency plan, while Air France has cut operating costs in half due to new savings measures.
According to the International Air Transport Association, carriers can expect to remain profitable on average, but may post losses in Europe and Africa. IATA expects an overall industry net income drop of 62%.
Key Statistics – Airline Industry in Spain (source: MarketLine)
- Spain’s airline industry posted over $17 billion in revenue for 2010 and a compound annual growth rate (CAGR) of 1.7% from 2006 to 2010.
- Industry performance is expected to improve with a CAGR of over 6% forecast from 2010 to 2015, when the Spanish airline industry could reach a value of close to $24 billion.
- In the four years leading to 2010, industry passenger volume improved with a CAGR of 0.1%; the number of passengers in 2010 alone totaled nearly 96 million.