RAINER UPHOFF / MADRID
Iberia faces increased competition from low-cost carriers and the end of its long-standing dominance at Madrid and Barcelona. Is it rising to the challenge?
Spain's flag-carrier Iberia is one of the few airlines which managed to stay profitable after 11 September 2001. Continued cost saving efforts, new customer services and distribution concepts, plus the focus on the Latin American market, which remained relatively unaffected by the crisis, helped the airline to remain on track.
However, Oneworld member Iberia faces a unique challenge in the European commercial aviation panorama: by 2005, Madrid and Barcelona airports will double current traffic capacity, as new runways and terminals enter service, ending Iberia's long-standing domination. The airline says this will open countless new opportunities for Europe's fastest growing air transport segment, the low-cost carriers.
A spokesman for Cologne-based Germanwings says: "The upcoming opportunities at Madrid and Barcelona are certainly a factor we are taking into account for our medium-term plans."
Easyjet is less enthusiastic: "We have plans, including offering Spanish domestic flights, when the airports open up. But AENA's [the Spanish aviation authority's monopolistic inflexibility and the slow reform of ground handling makes flying to Spain so expensive that we may prioritise our expansion in other European countries with a more competitive airport system," the airline says.
Iberia says it is preparing itself by "completely redesigning the short-haul economy class product and our pricing. But Iberia is not a point-to-point carrier. Where we make most money is in the Europe-Latin America traffic. The availability of the additional airport capacity will coincide with the delivery of our new A340-600 long-haul fleet and the arrival of the delayed A320/A321s, which will allow us to grow in that market."
Andoni Nieto, president of Spanish pilot union SEPLA, is not afraid of additional pressure to lower costs. "Iberia is one of Europe's most productive companies. Competitors like Easyjet are no problem, as their pilots are organised and paid in a similar way to other major airlines. And Ryanair avoids hubs like Madrid and Barcelona," he says.
The real losers may be Air Europa and Spanair, which have long battled for additional slots at Madrid and Barcelona. While the first is offering a half-hearted low-cost product, Star Alliance member Spanair might easily find itself caught between its own positioning as a full service airline and the fact that it lacks Iberia's long-haul connecting traffic.
However, Spanair's director-general Enrique Melia believes his carrier is well prepared for the challenge. "The low-cost carriers have made the market more price sensitive, which has forced us to become cost conscious and to create an enviable cost structure allowing us to offer domestic tickets for €30 ($34). But we will not follow the trend to downgrade the product."
An official at the Madrid chamber of commerce says corporate users are pleased with current trends: "Small business owners now get cheaper tickets and corporate executives can take advantage of more frequencies and destinations than ever, which is good for the economy. The real surprise is that Iberia has become a driving force behind this revolution." He adds that Iberia is a "rare example" of an ex-state monopoly managing to make its new competitors look old-fashioned, with innovations such as e-tickets via the internet and automated one-step air shuttle ticketing and check-in.
Regional market
Spain's regional market is dominated by Iberia franchisee Air Nostrum. But chief executive Carlos Bertomeu is concerned about maintaining a competitive cost base. Referring to an important engine overhaul deal with ITP and a training contract with CAE he says: "Now that we are a big player, we have to play with big partners for big contracts. When you go to one manufacturer and order 50 aircraft and place 50 options, you can then plan long term and reduce costs."
One regional start-up, IberlineExpress, is an interesting, but still rare, example of a small carrier taking advantage of the common European aviation market. A joint venture with Swedish operator Swedline, Iberline is based at the recently inaugurated Logrono airport. Its president, Hampus Anderson says: "We started operations with a Saab 340 after realising that Spain has important potential for this size of aircraft. We're planning to go beyond our current thrice-daily Logrono-Madrid flight, but we couldn't get slots to open a route to Barcelona."
Regional aviation is a "difficult business" in Spain, he adds. "In Sweden we have transparent public tender processes when a regional government wants to support essential air services to a remote region. But in Spain this is frequently circumvented by rather opaque publicity or advertising deals reached directly between the airline and cities or regions where they fly to. This certainly hampers free competition in the regional market."
Bertomeu says: ""If you speak one-on-one with heads of regional governments in Spain they understand that certain European regulations translate into fewer seats at higher costs to their region. Their reaction is to help us try and change those regulations."
However, he does not believe his company's deals, similar to Ryanair's, which are under scrutiny in France and Scandinavia, will be investigated by European or national anti-monopoly authorities: "Our deals are transparent and are not in contradiction of any law," he says.
Spain's only major cargo carrier, Cygnus Air, belongs to the Gestair group. Flying cargo mainly for Iberia, the DC-8 operator builds on proven concepts. Cygnus' chief executive Alvaro Macarrón outlines his strategy: "We want to offer low-cost and highly flexible operations to our customers. Atlas Air invented this business model and we found that it works well."
While Iberia is highly successful as an airline, it still needs to rationalise its corporate structure. Javier Alvarez, head of the company's maintenance unit, says restructuring plans have slowed down during the aviation crisis. "Our mission is to provide Iberia with the highest quality and most cost-efficient maintenance services," he says.
"This doesn't stop us focusing strategically on external services. We've just won the maintenance contract for Air Nostrum's Bombardier CRJ regional fleet. But we cannot be certain of being awarded all Iberia maintenance work. For example, its Airbus A340-600 engines will be maintained by Rolls-Royce as part of a total-care package. Other customers include China Southwest, Olympic Airways, Royal Air Nepal, Spanair, LanChile and LTU." Alvarez declines to reveal sales figures, although sources say internal and external sales add up to around €450 million annually.
ADDITIONAL REPORTING BY JUSTIN WASTNAGE
Source: Flight International
