IAG and a tale of two cities

First quarter results from British Airways and Iberia parent International Airlines Group really underscored the tales of two cities in the group; London and Madrid.

On the face of it the respective capitals of the UK and Spain share some common fortunes, not least that both countries are now back in recession. Charges too are on the rise, through air passenger duty in the UK and proposed hike in airport fees at Madrid.

First quarter results though – Iberia contributing €170 million to the group’s €249 million operating loss – provide a pointer to the differing fortunes in London and Madrid. And this was underlined by IAG executives during their results conference call today.

Chief financial officer Enrique Dupuy pointed to the strong performance in the London market as key to the strong revenue performance – up almost 8% in the first quarter on fractionally higher capacity. Chief executive Willie Walsh was equally positive about the resilience of the London market. “Although the UK economy is in recession, we are not seeing any evidence of that in our Heathrow hub.”

And now with a bunch of much prized new slots to play with through the BMI acquisition, even the long-standing frustrations of capacity constraints at the airport are alleviated for BA – at least while it shuffles its new slot pack.

By contrast Madrid is providing plenty of headaches for IAG right now. EasyJet chief executive Carolyn McCall earlier this week identified Spain as probably the hardest market for airlines right now, with the combination of high capacity, economic woes and planned new charges which could be implemented from June.

For IAG it has had to grapple with labour issues in its efforts to overhaul short-haul flights at Madrid, a path it has tackled through the recent creation of new short-haul operation Iberia Express. It also faces moves to significantly raise airports fees at Madrid Barajas Airport.

“The Government has indicated it is likely to increase the charges – we are obviously campaigning against it, as are other airlines that operate at Madrid,” said Walsh today. “If they go ahead, I believe it will have an impact on the capacity plans of all airlines at Madrid airport. I would not be surprised to see a reduction in capacity, not just at IAG, but all carriers, if these charges are increased.”

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