Labour demands appear to have pushed Iberia to strip its low-cost subsidiary, Viva, of its scheduled routes, leaving it to battle for a share of a charter market dominated by foreign carriers.
The Spanish flag carrier has already taken back the Africa and Middle East routes from Viva and European destinations will revert to Iberia from 15 May. But the flag carrier denies Viva claims that the move was largely a result of a compromise with Iberia pilots in crucial wage negotiations last December.
Viva management is angry because the carrier has produced profits on routes that Iberia originally ceded to Viva as loss makers. A source at the subsidiary says, for example, that the route to Cairo lost Pta250 million ($2.4 million) in 1991, the year before Viva took over. At the end of 1994 the route made Pta40 million ($320,000), as a result of a 14 per cent cost reduction.
Viva's costs are lower than Iberia's by almost any measure. 'In absolute terms, Viva is 40 per cent more cost-effective than Iberia,' says the source. But Iberia says it is confident its costs have come down, and says in March it had a break even operating result.
The move has confounded consultants. 'It is so completely contrary to what every other European airline is doing in cost reduction terms,' says Charles Donald, London-based European airline analyst at UBS.
Iberia says it sees the charter market as a growth area it needs to get into. 'Spanish tour operators account for only 15 per cent of the total Spanish charter market and Iberia has no participation,' says the carrier.
Source: Airline Business
