Spanish carrier faces stiff competition from low-cost rivals and high-speed train services

Spanish national carrier Iberia has reported dramatically lower profits for 2001, but remained in the black - due largely to limited exposure to the most affected North Atlantic and Middle Eastern markets.

Revenues rose 5.6% to €4.74 billion ($4.13 billion). However, one-off costs associated with increased liability cover after 11 September, and soaring leasing expenses, cut earnings by 75% to €53.1 million.

The company's narrowbody fleet modernisation added to its costs last year - leasing costs rose by c116 million - but the process is now complete, and Iberia hopes that a more standardised fleet will reduce costs in the long term.

Since taking over at Iberia five years ago, chairman Xabier de Irala has modernised the airline's fleet, replacing Boeing 727s, Airbus A300Bs and McDonnell Douglas DC-9s with an order for up to 76 new Airbus A319s, A320s and A321s in 1998. Iberia now operates a predominantly Airbus fleet, with Airbus A340s and Boeing 747s, 757s and 767s for long-haul routes. The airline has also sought greater flexibility by increasing the proportion of leased aircraft - it now leases 62% of its fleet, up from 48% only two years ago.

Chief financial officer Enrique Dupuy says Iberia's $2.6 billion narrowbody deal allowed it to get extremely good financing terms from Airbus - specifically deferral options and residual value guarantees, under which Airbus will guarantee the resale value of its aircraft, thus insuring lenders against a fall in aircraft values.

Like other European airlines, Iberia faces competition on its domestic routes from the growing low-cost airlines and well-established state-owned high-speed train operators. "Iberia has competed with charter operators for years now," and so its unit costs are "not much higher" than those of low-cost airlines, de Irala believes.

The airline's short-haul route network is not profitable, according to Iberia, and de Irala says: "I have no interest in flying European routes of 300km or 400km - let the low-costs and the high-speed trains do it."

Iberia hopes that, eventually, co-operation with the state-owned rail network will enable passengers to buy a single ticket "from even a small town in Spain to anywhere in the world".

Source: Flight International