Contrasting recent fortunes on either side of the Atlantic were once again evident in the third quarter reporting season. While North American carriers continued their recent profit run, European network carrier travails again dominated the headlines.
The ink, most of it red, had barely dried from Air France and Lufthansa's losses and restructuring moves from the first half, before Iberia and SAS detailed drastic action of their own.
The Spanish carrier will cut 4,500 jobs, 25 aircraft and 15% capacity as part of its efforts to turn around profitability by €600 million ($763 million) over the next three years. SAS Group delivered an even starker message in unveiling plans to sell assets to raise cash and launching a further cost savings drive.
Both carriers point to the action being necessary, not just to ride out existing troubles, but to secure their longer term futures.
"There are two main goals. The first is to stop the cash bleeding, We cannot go on like this," says Iberia chief executive Rafael Sánchez-Lozano. "There have been losses of around €900 million over the last four years. That is a lot of money and cannot go on.
"The second platform is to grow. It is not just about surviving. We want to be a leading group in International Airlines Group. The only we can grow is to make our cost base competitive."
In unveiling the plans for SAS, chief executive Rickard Gustafson said: "This truly is our final call if there is to be an SAS in the future. I know that we are asking a lot of our employees, but there is no other way."
Both men have stressed the urgency of action to their unions. Indeed SAS, which has a tentative agreement on extending its facility, will meet again on 18 November to "decide if the conditions for the implementation of the plan exist". Crucially obtaining support from unions is a condition of securing its extended credit facility.
The Scandinavian Star Alliance carrier says its existing cost savings programme - the SKr5 billion 4Excellence scheme which was launched little more than a year ago - helped more than double pre-tax profitability in the third quarter to SKr568 million. But SAS is still losing money before taxes at the nine-month stage and expects to post a loss before taxes and non-recurring costs for its shortened financial year to October.
Its two-fold plan involves a SKr3 billion disposal and financing plan - including Norwegian regional operation Wideroe and its ground handling unit - and a new SKr 3 billion saving programme, 4XNG, including centralising administration functions, arranging new pension terms and outsourcing functions.
SAS Group expects the disposals and outsourcing of 4XNG to shed some 6,000 personnel from the company. Salaries will be cut heavily, by up to 15%, and the working structures in the company will be simplified. SAS Group expects its headcount to fall from 15,000 to 9,000. It is to negotiate with external parties to take over ground-handling operations but a timeframe has yet to be decided.
Iberia has opened talks with its unions as it seeks to push through major changes of its own. It has set its unions an end-January deadline to agree on restructuring, but will move ahead if necessary to ensure the cuts can be implemented in time for the summer season.
The fresh pain comes despite Iberia's having already taken the first steps to restructure loss-making short-haul operations at Madrid through the formation of Iberia Express. While citing the success of Iberia Express - IAG chief executive Willie Walsh says it began operating profitably in its third month of operation after launching in April - the Spanish carrier says wider action is necessary.
"It is clear the market environment [in Spain] has got much worse that we thought last year," says Sánchez-Lozano. This not only refers to the Spanish economy being much weaker than first feared, but also lower growth levels in some of Iberia's key markets.
The solution is a major review of its long-haul network, and the short-haul routes needed to support this, which will see 20 short-haul and five long-haul aircraft taken out of service. "We are going to focus on our core markets, that is why we are cutting 15% capacity," says Sánchez-Lozano.
If IAG is feeling the pain of its Spanish investment, it has not lost its appetite for carriers in the region. Next year it plans to acquire the outstanding 54% share of Vueling. Vueling is profitable and has unveiled growth plans which will see it pass 100 destinations from its Barcelona base next summer.
Vueling's chief executive Alex Cruz has put the success of the airline, in contrast to many other network carrier-affiliated low-cost ventures, down to management independence. Walsh says IAG, should it complete the acquisition, would keep Vueling as a standalone entity in the group and credits the job done by Vueling's management, which would remain in place.
"I see absolutely no reason or potential of integrating Vueling into Iberia," he stresses. "We think it adds value as-is."
The timing on the deal is more to do with resources. Walsh says Vueling has been on IAG's list from day one, but BMI was the more urgent acquisition and the company did not want to do both at the same time. "We've acquired BMI, completed the integration, we believe we have the capacity to look at something else," he says.
That integration of BMI seems to have gone smoothly. IAG expects the operation - which was losing €200 million annually when it was acquired in April - to reach breakeven in the second half of next year, around six months earlier than planned. "We do believe we are on track to reach €100 million [operating profit] by 2015," says BA chief financial officer Nick Swift.
EUROPEAN CARRIER THIRD QUARTER SNAPSHOT (July-September 2012)
|International Airline Group
Indeed, the drastic action at Iberia and SAS apart, the news among European network carriers was considerably less bad than it might have been. While Iberia was racking up losses of €262 million in the first nine months, BA was making a €288 million operating profit.
Lufthansa and Air France-KLM, while both warning of a long road ahead, reported ahead of market expectations in the third quarter. Both carriers enjoyed slight improvements in operating and net profits in the quarter.
Elsewhere, in Europe's budget sector Norwegian and Ryanair both enjoyed bright fortunes. Norwegian recorded its best quarterly result in posting improved pre-tax profits of NKr873 million ($152 million), while the Irish budget giant raised its full-year outlook on improved yields.
Collective figures for 10 European airline groups show third quarter operating profits slightly higher at $3 billion and even stronger pick-up in net profit for the period which reached $2.4 billion.