It has been a challenging start to the year for Spanish airlines, with the collapse of long-establish Spanair, the launch of - and industrial tension around - Iberia's new Madrid short-haul airline, and continued concern about the country's economy.

The fall of Spanair at the end of January, despite its well-documented financial difficulties, was still sudden. The Barcelona-based Star Alliance carrier had to suspend flights on 27 January after talks with Qatar Airways over a cash-for-shares deal collapsed. With the Catalan regional government making clear that Spanair could expect no further loans from the authorities, the airline ran out of avenues to secure much-needed investment. Spanair had racked up operating losses of more than $400 million between 2006 and 2009.

Spanair MD-80,


Spanair collapsed suddenly in January

Spanair, which operated a fleet of 29 aircraft, carrying around seven million passengers annually, was one of three significant operations out of Barcelona's El Prat airport. Spanish low-cost carrier Vueling, which has grown strongly since its merger with fellow Barcelona-based operator Clickair in 2009, was joined by Irish budget carrier Ryanair at the Catalan capital's main airport in 2010. It was one of four Spanish bases Ryanair opened that year as the no-frills carrier pushed into the country, encouraged by Spanish efforts to bolster tourism by cutting airport fees.

Vueling was quick to step in and mop up routes vacated by Spanair, and chief executive Alex Cruz expects to benefit from further consolidation. "I can't see how the market will continue with current fuel prices without further consolidation and we plan to take advantage of that," Cruz told analysts at its 2011 annual results conference call earlier this year. Vueling, which lifted net profits to €10.4 million ($14 million) in 2011, could grow capacity by up to a quarter this year. It also hopes to make a decision on an order for around 30 aircraft in the summer.

Iberia holds a 46% stake in Vueling - having been one of the original shareholders in Clickair - and, under a wet-lease deal, used the Barcelona-based low-cost carrier as a stop-gap solution to its problems on short-haul routes out of Madrid. In common with most European network carriers, Iberia had found its short-haul operations increasingly unprofitable amid tougher competition.


Following Iberia's merger with British Airways, the boss of its parent company International Airlines Group (IAG), Willie Walsh, made overhauling Iberia's short-haul operation a priority. And after loss of patience with Iberia's unions, the answer was to establish a separate operation, Iberia Express.

"What we have at Iberia is a cost base that is too high and that the trade unions have refused to address," said a determined Walsh, days before Iberia Express launched in late March. "So the response to that situation is for the company to establish Iberia Express. We are determined that it will expand its operations in the way we have outlined. There is no credible alternative to Iberia Express."

Iberia Express launched operations on 25 March, using four Airbus A320s operating on domestic routes to Alicante, Malaga, Mallorca and Seville from its Madrid Barajas base. Its first international services, to Dublin and Naples, follow in June. It expects to operate 13 A320s by the end of the year, and three more next year. "We have worked more than two years on this project," says Iberia's chief executive Rafael Sánchez-Lozano. "Iberia Express is key to Iberia. We have to ensure profitability on short- and medium-[haul] routes."

Spain mainline fleets

It effectively means Iberia's second launch of a low-cost operator in six years. Like Clickair, which launched in October 2006, Iberia Express will focus on costs. The new carrier aims to save €100 million ($132 million) by 2015. Its fleet is sourced from Iberia.

"Iberia Express will have the same philosophy as Clickair," says Iberia Express chief executive Luis Gallego. "We want an airline that works as fast as Clickair and has the same punctuality. We want to create a model that will be self-efficient and eventually will not have to rely on subsidiaries."

Iberia Express will mainly address domestic routes as parent company Iberia builds on connecting traffic at the Madrid hub. According to Sánchez-Lozano, 70% of long-haul flights are connecting flights.


The launch of Iberia Express will not affect the operations of Iberia regional operator Air Nostrum or Vueling, says Sánchez-Lozano. "Air Nostrum has a franchise agreement with Iberia and tends to operate smaller aircraft on smaller routes. It will continue to play an important role for Iberia."

He adds: "There could be some routes overlapping with Vueling but it [Iberia Express] has a different business model. Vueling is not aimed at linking a network and operates point-to point routes from Barcelona."

But if the vision is clear, the birth has not been so, as labour protests continue. Iberia pilots held 12 stoppages between December 2011 and March 2012 - costing the airline an estimated €36 million - in protest at the creation of Iberia Express, which Spanish pilots union SEPLA says undermines the job security and working conditions of its members.

But the dispute entered a new phase in April, when 150 Iberia flights were grounded in the first of 30 additional one-day strikes that will now be repeated every Monday and Friday until July.

"The productivity of Iberia pilots is the lowest in Spain," the airline argues. "They fly an average of 650 hours per year, compared with the 900 the law permits."

Though Iberia's bargaining agreements impose a limit of 820 hours on short-haul fleets and 850 hours on long-haul ones, additional conditions and restrictions mean that pilots never reach these limits. "Without eliminating these conditions and restrictions, it would be impossible to increase productivity to a level near that of competing airlines," the airline insists.

Iberia Express A320

SEPLA claims that up to 8,000 jobs will be put at risk if the parent company starts moving short and medium-haul capacity from the full-service carrier to its low-cost subsidiary. The pilots' union says it has drawn up its own cost-cutting plans to save the company €90 million per year, mainly through lower salaries for new hires.

Tensions were stoked further when Iberia announced it will cut pilot payroll expenses by 20% while demanding a 25% increase in productivity. Resolving the profitability of Iberia's short-haul operation is a crucial part in turning round the fortunes of Iberia, the financial performance of which - full-year results for IAG clearly illustrate - is lagging behind its partner, British Airways. The UK airline generated an operating profit of €592 million in 2011, compared with losses of €61 million by Iberia in the same period.

These differing fortunes in part reflect the relatively robust business climate that has remained in London, even with a slow economy. Spanish economic woes, though, have continued. Spain is back in recession and concerns over its debt crisis remain.

An appetite for the airline business still exists in the country. Spanish investors - including Vueling founders Carlos Muñoz and Lázaro Ros - have launched one of the only new airlines in Europe in recent years. Ambitious start-up Volotea has just launched flights initially out of Venice, but it will open a summer operating base in Ibiza and begin serving the Balearic Islands in the middle of June.

Source: Flight International