Colin Baker / Edinburgh
Iberia is aiming to launch the as-yet unnamed new carrier as soon as this October with five leased Airbus A320-family aircraft. Its main rival will be newcomer Vueling, which began services in July 2004, and now operates a fleet of 10 A320s on 15 routes around Spain and Europe.
The Spanish flag carrier will take a 20% stake in the start-up, but will be the dominant partner with control over 80% of the carrier’s economic rights. The other shareholders, with a 20% stake each, are Grupo Iberostar, Nefinsa, Grupo Cobra and Quercus. The aim for the new venture, which will be operated independently of Iberia, is to be profitable by 2008 when its fleet could have grown to 30 aircraft.
The history of mainline carriers developing low-cost subsidiaries is littered with casualties, but some believe that this particular exercise has more chance of success than most as Iberia will not damage its Madrid Barajas hub. “There is a clear geographical distinction,” notes Chris Avery, analyst at London-based JP Morgan. “There will be no cannibalisation of traffic at the Madrid main hub.”
Avery believes that Iberia may be able to avoid some of the labour issues that have befallen these types of operation in the past. Looking at the problems British Airways had with its former low-cost offshoot Go, he notes: “BA was trying to grow its low-cost carrier at another London airport, hence there was real overlap with mainline services, and therefore real potential for industrial relations problems as BA tried to tackle mainline costs while growing the low-wage business in the same city.” Again, he thinks the geographical split provides Iberia with an opportunity to avoid these problems.
Iberia’s low-cost move comes as the carrier shows signs of an upturn on its intra-European routes. During March and April, capacity on the Spanish flag carrier’s European sectors was up 1.4%, but traffic increased by 12.1%, generating a massive 7.2 percentage point increase in load factor, to 75.4%.
Iberia saw its first-quarter losses widen to €45 million ($58 million), up from €16.1 million last year, mainly as a result of a 45% increase in fuel costs. This amounted to €80 million while it also incurred expenses of €8.5 million associated with the start-up of the carrier’s new terminal in Madrid, said chief executive Fernando Conte.
Avery notes that if this proves sustainable, “it would be an important first indication that Iberia may now be starting to hold its own against the incoming wave of low-cost carriers”.
Privately owned Vueling meanwhile says that it expects to break even this year. It made an undisclosed loss in 2005 on revenues of €136 million. ■
“There will be no cannibalisation of the main hub’s traffic” Chris Avery analyst, JP Morgan
Source: Airline Business
