Viewpoint

Paris Feast Finishes But No Return To Salad Days

During the week-long aviation feast that is the Paris Air Show, when aircraft sell faster than ice-creams in a heatwave in McAllen-Edinburg-Mission, the struggles involved in operating a fleet successfully and sustainably in today’s difficult market take a back seat. After all, when the latest snazzy technology is soaring into the sky, who wants to think about fuel prices, air passenger duty (APD), strikes, redundancies and restructuring?

Reality check. While PAS attendees were busy watching the aerial displays, eating Magnums and intermittently signing contracts, not one but two operators spoke about ongoing battles for financial viability. First was International Airlines Group (IAG), whose boss Willie Walsh warned at the company’s AGM in Madrid that Iberia “must restructure if it is to survive”.

Since the merger in 2011, Iberia has been like a fly in IAG’s Cornetto, wiping out €347m of profits at sister airline British Airways (BA) last year with a €351m operating loss, as well as overshadowing successes elsewhere in the group such as the establishment of Iberia Express in 2012 and the acquisition of Vueling in 2013.

At the AGM, Walsh said IAG’s Spanish subsidiary is now unprofitable in all markets, including long-haul, and that there is a risk the airline will “disappear” unless there is a collective effort to transform it. Describing the situation as “critical”, Walsh defended job and wage cuts at the airline by saying that everyone within the company “understands that they have to make sacrifices to help save Iberia”.

But the desperate Iberia workers who fear being thrown onto the scrapheap of the Spanish economy are scarcely eager to take one for the team. Having already gone on strike in February and March this year, they remain unsettled despite mediation to limit the job losses and pay cuts. The Spanish pilots’ trade union is also taking action over the latest terms imposed.

Meanwhile, over in Exeter, pre-tax losses at regional airline Flybe have increased from £6.2m to £40.7m for the year to March 31, 2013. The airline is enacting a cost-saving plan involving the sale of 25 slot sales at Gatwick, around 500 redundancies, the deferral of 20 aircraft deliveries and a five per cent reduction in pilots’ pay. The airline has seen a one per cent decrease in passenger traffic to 7.2m over the past year.

Flybe’s CEO, Jim French, blamed the “totally unacceptable burden of APD”, which now makes up 18 per cent of the airline’s ticket prices, as a key factor in the loss. He is hopeful, however, that the turnaround in Flybe’s fortunes and the resultant job cuts “has got politicians waking up and realising there’s a problem”.

Post-PAS and its big-spending bonanza, though, more than a few operators are going to have to wake up and remember problems which are far from licked.

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