Iberia seeks 'radical' change after record loss

MADRID, Feb 25, 2010 (AFP) - Iberia said Thursday it was seeking a "radical" transformation after it posted a record net loss in 2009 as the recession dented demand for air travel, especially for more profitable premium seats.

The Spanish airline swung to a worse-then-expected net loss of 273 million euros last year, with a loss of 91 million euros in the fourth quarter alone, after posting a net profit of 32 million euros (43 million dollars) in 2008.


Chief executive officer Rafael Sanchez-Lozano said the carrier's goal for 2010 was "to stop losing money.

"We are seeking a radical transformation of the company," he said, adding this would be achieved by completing its planned merger with BA and transferring short and medium haul routes to a new airline it plans to create.

In October Iberia unveiled plans to set up a new airline by 2011 to handle these routes, where competition is fierce, to focus on more profitable long routes between Europe and Latin America where it is the market leader.

Iberia chairman Antonio Vasquez said the airline was facing "much more aggresive competition" from low-cost carriers as well as from the expansion of Spain's high-speed rail network which was diverting passengers.

"If for our clients, on short and medium haul routes, the priority is price, then we must respond firmly, and we can not do it with the same cost structure from other eras," said Iberia chairman Antonio Vasquez.

Iberia has also introduced a series of cost-cutting measures, including lay-offs of all cabin crew older than 55 and a company-wide wage freeze in 2010 and 2011, which have provoked union anger.

But these measures have not been enough to offset declining passenger numbers which caused revenues for the full-year 2009 to plunge 19 percent to 4.23 billion euros.

Roughly a third of Iberia's revenues come from its domestic market, which has been mired in recession since 2008 as the financial crisis hastened a correction that was already underway in its once-buoyant property sector.

Vasquez said the signing of a merger agreement with British Airways would take place "in the coming weeks" and it will come into effect "more or less at the end of the year."

BA and Iberia had announced in July 2008 that they were in talks for an all-share merger to create the world's third largest airline by revenue.

But discussions ran into differences over the balance of control and the size of BA's pension-fund deficit.

Under the merger agreement, BA will have the upper hand and hold 55 percent of the new company, while Iberia will hold 45 percent.

Earlier this month BA forecast a record loss in its current financial year owing to weak demand for air travel and despite sharp cost cutting, underscoring the challenges faced by the sector and the need for a merger.

A poll of four analysts by Dow Jones Newswires had predicted that Iberia would post a 2009 net loss of 256.3 million euros and revenues of 4.41 billion euros.

Iberia's fourth quarter loss of 91 million euros is nearly five times the loss of 19 million euros posted during the same year-ago period when Spain's recession was just getting started.

Revenues during the quarter plunged 19 percent to 1.08 billion euros from 1.33 billion euros during the fourth quarter of 2008.

Shares in the airline closed down 2.22 percent at 2.19 euros. The benchmark Ibex-35 most traded share index closed down 1.25 percent.


by Fabien Zamora
© 2010 AFP