IAG- A marriage made in heaven?

With IAG’s first annual results just out and showing promising financial progress it’s an opportune moment to reflect on whether the marriage between British Airways and Iberia is indeed a partnership made in heaven?

Profits have been delivered-a better result than some peers are likely to report in the coming weeks. However rising fuel prices, the economy and pilot strikes are among the challenges already faced, so can this Anglo Spanish alliance take the strain?

I know from personal experience that any airline merger or integration is difficult from a human perspective, across different national cultures, even more so.

Listening to IAG and Iberia Chairman Antonio Vasquez talking recently, he indicated that there are no egos to get in the way of progress and one senses a real rapport amongst the Spanish and British management team. This is something which should not be underestimated in assisting British Airways and Iberia make good early progress on a number of fronts.

There are however, storm clouds to be faced too

On the upside, Antonio Vasquez is clear in his vision for the direction of the group, pointing out that BA and Iberia “had lived together” for some time before the official IAG union took place.

He explains that the uninspiring name IAG (actually International Consolidated Airline Group) was chosen explicitly so as not to detract from the well-known brands of Iberia and British Airways – and other future partners. While it is likely that other airlines will join the group – there is no immediate hurry to expand the family.

The media may have drawn up an ambitious wedding list of potential acquisitions when IAG was formed – but the reality is likely to be quite different.

What transpires from talking with CEO Willie Walsh is that any acquisition target must meet clear criteria to strengthen IAG’s position at their twin hubs in Heathrow and Madrid or reinforce the group’s position in key markets.

Portugal’s TAP is certainly of interest due to its extensive Brazil network but it will depend on when the Portuguese Government indicates it is willing to start a sale process

Bmi certainly makes sense and IAG will be hoping for regulatory approval of this during March. It represents a one shot chance for the BA side of the business to grow its position in a capacity constrained Heathrow

Could investment in Kingfisher now be on the cards? Too much to digest or an opportunity for the taking?

Meanwhile costs have been cut and synergies realised but as with all airlines IAG is battling with a rising fuel bill. Fortunately, revenues have held up over the last year, particularly long haul premium traffic. This could well slow in the year ahead. The Group cannot afford to let up in its cost focus. It’s a full time effort but one which has already caused staff frictions

Iberia is battling with its pilots about the setting up of a new lower cost subsidiary Iberia Express. As with BA’s cabin crew dispute, this shows both the difficulty in communicating serious business issues to an absent workforce. Iberia needs the short haul feed but it can’t sustain the short haul losses which are the consequence of tough competition with low cost carriers.

In my view, Willie Walsh had no choice but to tackle the cabin crew issues. It wasn’t about anti union dogma but about long term survival, which ultimately protects jobs. When asked about the current industrial relations challenge at Iberia, Vasquez is clear that Iberia Express has to have new thinking and new ways of doing things

On top of these internal issues IAG must keep its eye on the Chapter 11 Bankruptcy process of Joint Venture business partner American Airlines. Rumours abound of possible bids for the company. Vasquez is clear about the value of the partnership. If IAG has its way it will not only retain but deepen it.

There’ll be plenty to test the partnership in the months ahead. But in airline terms at least, it appears that there’s a lot to be said for “living together” to see if you have the basis of an enduring marriage.


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