April 29, 2013
Credit: British Airways
When Willie Walsh needs a break between meetings or a reminder of what brought him into the airline industry, he has two options: He can simply look out the window, or walk downstairs and across the street to a little stand built for aircraft spotters to watch the activity at London's Heathrow Airport.
The CEO of International Airlines Group (IAG) can see the functioning part of his empire at Heathrow. There are not more British Airways aircraft taking off than before, but at least the airline has stopped shrinking after 10 turbulent years and, following the acquisition of BMI, it has a bit of room to grow at one of the world's most congested airports. That stands in stark contrast to the other half of Walsh's empire, Spain's Iberia, which is in accelerated decline with no clear turnaround in sight.
The name of the BA and Iberia parent is apt—it is indeed an international group of airlines—though for now it is a European airline group that will soon include Vueling. IAG was not an early promoter of airline consolidation in Europe. Air France and KLM got together in 2004, followed by Lufthansa's deals with Swiss International Air Lines, Austrian Airlines and Brussels Airlines. It was not until after those deals that IAG was formed in 2011. A little more than two years into its creation, reviews are mixed.
Of course, like Air France-KLM and Lufthansa, IAG is about consolidation the European way. It is distinctly different from the big mergers in the U.S., where two formerly separate entities have melded to form one. In Europe, the airlines are put under one umbrella, and everything that can be done jointly will be handled by the parent company to exploit synergies, but much remains separate. This approach has its limits. The day when brands can join across European countries and air operator certificates (AOC) can be combined is still a very long way off, it seems.
The creation of IAG looked like a great idea. BA was struggling with growing competition from low-cost carriers (LCC) and increasingly dependent on the functioning of its Heathrow hub. It was one of the world's great airline brands, but with almost all of its eggs in one basket: North Atlantic operations. Iberia was also being challenged by LCC competition and was specialized in long-haul services to Latin America. It appeared that the two would complement each other well, and the target was to achieve €500 million ($650 million) in synergies by 2015.
While that target may or may not be achieved, IAG needs to find answers for two fundamental questions: Will there be a future for Iberia? And how can the financial bleeding be stopped quickly?
“If you want a future for Iberia, you are going to have to change,” Walsh tells Aviation Week at IAG headquarters. “If you want to hold on to what you have, what you have is going to be smaller and smaller. For Iberia to have a future, Iberia has to be efficient.”