IAG: Iberia requires deeper restructuring than originally foreseen

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International Airlines Group is to overhaul Spanish carrier Iberia's structure to stem the losses which have exceeded the assumptions made in an earlier turnaround plan.

But IAG does not believe it will need to shift its target of profit improvement by 2015.

Iberia's mainline operation remains "chronically uncompetitive" with low-cost carriers, IAG chief Willie Walsh states, and is facing an increasing threat from Latin American operators.

But Walsh points out that the encouraging performance of newly-created division Iberia Express and other budget airlines in the region has "clearly demonstrated" that profits can be made in the troubled Spanish market.

He says there is "great potential" in the Iberia business but the first-half operating loss of €263 million ($321 million) shows the carrier will need a "much broader and deeper" restructuring.

Iberia has struggled with the poor Spanish economic situation, made worse by tax increases, while being burdened by fuel prices.

IAG has been focusing on the risks posed by the eurozone problems, and has established a crisis management group which meets every two weeks to discuss counter strategies.

It says Iberia's restructuring plan will be finalised by the end of September and will probably include "short term downsizing" as well as a reshaping of the network to increase unit revenues.

Walsh says there will be a re-evaluation of "every part of the business" in order to achieve sustainable and profitable growth.

"Everything we've seen so far tells us this [turnaround] can be done," he says, adding that he "doesn't see any reason" why the 2015 target should need to change.

Original improvements centred on synergy benefits of over €200 million, as well as savings arising through the long-haul fleet and product, and the Madrid hub, are all on target, IAG states.