Walsh keeps pressure on Iberia despite Q3 profit

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IAG chief executive Willie Walsh is taking heart from the improved performance at restructuring Iberia, but says there is much more work needed before the Spanish carrier gets "to where it needs to be".

Iberia posted an operating profit before exceptional costs of €74 million ($100 million) for the three months ending September 2013, compared with just a little better than break-even at the same stage last year. The improved performance comes largely off the back of a 15% cut in capacity and an improvement in employee unit costs, principally through salary cuts.

Iberia made an operating loss of €453 million last year its fifth consecutive year of operating losses.

It had racked up losses of €551 million at the halfway stage of this year, though this included restructuring costs of €312 million.

"It's a great start, but there's a hell of a lot of work to do," said IAG chief executive Willie Walsh of Iberia's performance, during a third-quarter results conference call today. "It's good to see they have been able to deliver an operating profit in the quarter, but there is a lot of work to do there. We are not going to remove the focus on the work that needs to be done there.

"We will need to see more changes to the work practices and productivity. But we are doing well so far."

Walsh says the staff-reduction plan is on track at Iberia. Under the package brokered by the mediator early this year to settle the industrial dispute between the airline and unions over cuts at the carrier, just over 3,000 jobs will be cut at Iberia, while pay cuts of between 11% and 18% were imposed though 4% will be returned once an agreement on improved productivity is struck. "The mediator's proposals are a good first step it stemmed the losses," Walsh says, but he adds there are more changes to be implemented.

Iberia has cut around 15% of its capacity this year around two-third of this coming from route cancellations, and the remainder through reduced frequencies. "We haven't seen anything that suggests we took too little or to much capacity out," says Walsh. "We are absolutely comfortable that we called the capacity right."

While IAG's original plan did not assume any growth in unit revenues at Iberia this year, Walsh says the group felt it should be possible do to so when taking so much capacity out of the market. "We are now seeing that trend. The unit revenue performance [at Iberia] has been improving between Q2 and Q3, but there is still work it needs that Iberia needs to do. I believe there is more available to Iberia through their improved commercial activities."

As Iberia has been retrenching, other operators have been expanding. This includes SkyTeam carrier Air Europa, which has been particular active in developing routes into Latin America. "Air Europa has a more efficient cost-base than Iberia," acknowledges Walsh, explaining this is why Iberia has had to retrench from some routes and restructure.

"With the changes we are implementing and that we are negotiating, we will have a much better cost base than Air Europa, which will allow Iberia to recover lost ground," Walsh says, adding that he views the current situation as a "tactical retreat" while the carrier restructures. "I wish Air Europa well, but they need to recognise Iberia is going to come back at them when we have restructured our business," he says.

Walsh says there will be no additional capacity at Iberia in 2014 and stresses further investment in growth at Iberia is contingent on more changes. "It's very early days. Iberia is coming from significant losses to a position where it will be more competitive. But it is by no means where it needs to get to," he says.