“I think, for me, all the whining and moaning that’s gone on has been completely unnecessary,” says Willie Walsh, pointedly.
The CEO of International Airlines Group (IAG) has never been one to mince his words, and he addresses the seemingly neverending dispute between Gulf carriers and their older rivals in Europe with his usual gusto. But the Irishman differs from colleagues such as Air France-KLM’s Jean-Cyril Spinetta and Lufthansa’s Christoph Franz in that he believes that competition from the Gulf has, by and large, been a positive development in the aviation industry.
“It’s a bit like what you had back in the 80s and the early 90s with the low-cost guys, with everybody saying it’ll never work and it’s unfair,” he continues. “You’ve just got to get on with it and compete.”
Competing has never been a problem for Walsh, and this year is shaping up to be a pretty interesting one for IAG. The holding company, formed in 2011 as a result of the merger between British Airways - which Walsh used to run - and Spain’s Iberia, is the third-largest airline company in Europe, and the sixth-largest in the world (Emirates is currently eighth).
Alongside the flag-carriers of the UK and Spain, IAG is also in the process of acquiring Vueling, the Barcelona-based no-frills operator in which it already holds a 45.85 percent stake.
The creation of IAG is part of a pattern of consolidation in airlines across more traditional economies. In US, that trend has been exemplified by tie-ups between American Airlines and US Airways, and between Continental Airlines and United. In Europe, Air France and the Dutch airline KLM tied the knot back in 2004.
Walsh says that IAG’s progress since its inception has “gone well” but the merger has taken place against a backdrop of tough economic circumstances – particularly in Spain – and the high oil price, which has pushed carriers the world over into the red. Last year, IAG posted a $1.29bn pre-tax loss, pulled down by impairment charges against intangible assets and extra costs at Iberia.
“Clearly the financial performance of Iberia has been a challenge; economically the situation in Spain is difficult and will be for some time,” Walsh says. “British Airways has the advantage of having its centre of gravity in London, so although the UK economy has been pretty anaemic, London has not seen a recession in the way that the UK has.”
But that headline figure actually masks some pretty good news. Iberia is currently undergoing a restructuring programme, which has resulted in strike threats from the carrier’s workforce. Not that that will faze Walsh, of course; he first made his name as an astute negotiator on the Aer Lingus pilots union when he joined the Irish carrier as a cadet pilot in the early 1980s, before cowing the BA unions during that operator’s own restructuring in the latter years of the last decade. When that restructuring is complete, Iberia should be in a better position to compete in Europe, as well as cementing its role as the leader on the lucrative routes between its home continent and the fast-growing markets of Latin America.
Over at Heathrow, BA posted a $450m operating profit last year on the back of good growth in premium traffic and additional slots at Heathrow gained as a result of its integration of British Midland Airways (bmi). Add to that IAG’s purchase of Vueling – a company that tripled its profits to $37m last year – which was accepted last week, and the prospects start to look increasingly attractive.
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