Walsh Balances IAG Growth With Iberia’s Revival

By Jens Flottau
Source: Aviation Week & Space Technology

That is the message Walsh is delivering to the Spanish trade unions. But the April 15 deadline to reach a negotiated solution passed, and as Iberia proceeds with deeper double-digit pay cuts for pilots and cabin crew, as well as mass layoffs, it is doing what Walsh predicted: becoming smaller and smaller. Iberia called on pilots to start the talks, but so far, the Spanish pilot union, Sepla, is refusing to come to the bargaining table.

Walsh says he is not surprised. “I have dealt with the unions in several countries. I don't see much difference between them,” he says. “It is always going to be difficult.” One factor in the equation that could make a difference is Walsh himself. “I guess the difference between me and many other airline CEOs is that I have determination to tackle these issues and some others don't,” he says.

His track record is impressive. After working his way up through the ranks at Aer Lingus to become a Boeing 737 captain, he started his management career in the late 1990s as a turnaround specialist at leisure carrier Futura, an Aer Lingus affiliate in Spain. He became Aer Lingus chief operating officer two years later and subsequently helped rescue the Irish carrier. That success earned him an offer to take over as BA CEO when Rod Eddington left in 2005. BA's health is due in large part to Walsh's insistence on cutting costs and improving efficiency, although at the expense of strained labor relations.

The two airlines are now run by Keith Williams and Raphael Sanchez, respectively, but Walsh is still deeply involved in anything strategic.

And the turnaround of Iberia is strategic for IAG. “It was clear that Iberia needed to restructure its cost in relation to pilots and cabin crew and that it did not have an efficient short-haul operation,” Walsh says. “The bit that was different to what most people expected was the depth of the recession in Spain and the eurozone crisis. The cyclical problems are certainly deeper than I had expected.”

IAG created Iberia Express as a separate operation responsible for short-haul feed for the Madrid hub. “Iberia Express has shown what can be done. It has non-fuel unit costs that are 40% lower than Iberia's. It is not just more efficient than Iberia, it has a lower unit cost base than Vueling,” Walsh points out. “It demonstrates that the short-haul part of a network airline can be profitable.”

That is, if it is allowed to operate. The Spanish government has imposed a mediation process to resolve a dispute between the airline and its workers over pay and work conditions. Iberia could very well be forced to discontinue its successful affiliation next year.

“They should not have gotten involved in the dispute,” Walsh contends. “This is the bit that I don't understand when I look at Spain. There is 26% unemployment, 53% youth unemployment, jobs are not being created, and we set up a vehicle that actually created jobs and had the opportunity to grow.”

Despite these problems, IAG still wants to invest in Spain. Its offer for the highly profitable low-fare carrier Vueling, which it raised to €9.25 from €7 per share, was recommended by Vueling's board and accepted by the airline's shareholders. Following the transaction, IAG will hold more than 90% of Vueling's shares. CEO Alex Cruz, like Sanchez and Williams, will report to Walsh.

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