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  1. #1
    Alumno Piloto
    25 oct, 09
    Santiago de Compostela (Temporalmente en LCG)



    · Iberia a Europe-Latin America specialist
    · Iberia’s employee cost falls from 30% of revenue in 2012 to 24.2%
    · Iberia needs A350-1000 more than BA for hot & high missions
    · Iberia’s Madrid hub well placed to capture North Asia-LatAm spillover demand from Heathrow
    · Iberia’s Madrid routings on North Asia-LatAm competitive with Middle Eastern hubs
    · Madrid commands 60.3% & 41.2% of Spain’s LatAm & Asian traffic
    · Spain targets 1 million Chinese tourists by 2020 with 20-25% annual growth
    · Iberia to launch premium economy class: sources
    · Iberia targets 25% employee cost per ASK reduction by 2016 & 35% by 2020

    British Airways’ parent International Airlines Group (IAG) is often in the headlines for the right reasons, ranging from its €2.55 a share bid for Irish flag carrier Aer Lingus to Qatar Airways acquiring a 9.99% stake (“Qatar Airways nets a prized catch, expanding westwards“, 5th Feb, 15). But it is another IAG subsidiary, Iberia, that offers invaluable lessons for its European legacy peers.

    From being plagued by rigid labour rules, an unsustainably high cost base, stiff low-cost competition in its home market, to becoming a Latin America specialist right-sized for future growth, with a short-haul European network focused on the provision of feed traffic to its Madrid Barajas Terminal 4 hub and a short-haul low-cost subsidiary Iberia Express defending its home turf, Iberia’s transformation is nothing short of remarkable.
    And the numbers show. After 5 years of heavy and perennial losses totalling €1.12 billion on an operating level, 2014 is destined to be Iberia’s first year in the black since 2008, with a 3% lease-adjusted operating margin and a 4% return on invested capital (ROIC) in real terms. For the first 9 months of 2014, the oneworld carrier has already posted a €67 million operating profit.

    Its “Plan de Futuro” foresees a 10-14% lease-adjusted operating margin and a more than 12% ROIC which combines to produce an annual €200-300 million free cash flow (FCF) by 2017-2020. In a further sign of confidence, Iberia will recommence its 5 times weekly Madrid-Havana service from 1st June onwards and launch a new 3 times weekly Madrid-Cali-Medallin-Madrid service beginning 3rd July onboard its Airbus A330-300 aircraft.

    Looking forward, Iberia will not only focus on further productivity gains and becoming even more efficient, and ride on a broader Spanish economic recovery of which economists forecast the Iberian economy will be the best performing one in the eurozone in 2015 after posting a 1.4% growth in 2014, the fastest since 2007; but also leverage on its strengths to capture surging inbound tourism demand from China and feasibly origin and destination (O&D) demand for onward connecting journey to Latin America with its new Airbus long-haul fleet of 8 A330-200s, -300s and A350-900s each.

    Leaving no stones unturned

    Make no mistake, these progresses do not come easily. If anything, Iberia has left no stones unturned in its restructuring programme, not least 50% of its management team was replaced in the process.

    Indeed, one may question if Iberia’s successful turnaround simply owes to the fact that it is further along and at a more advanced stage of cost transformation than its European peers, as fellow legacy carrier Air France has cut 7,500 jobs since 2012 and is eyeing a further cut of 800 cabin crew and ground staff jobs after a pilots strike cost the carrier €330 million in operating profit in 2014 third-quarter. The Franco-Dutch group is now embroiled in a row of using KLM’s €1 billion annual operating profit for group purposes.

    Likewise, Lufthansa has reached a preliminary agreement with its cabin crew for a 20% lower cost on 14 A340s and a new collective labour agreement with Swiss International Air Lines’ pilots union IPG since July 2014. Its Austrian subsidiary has also achieved significant progress in settling a dispute with its unions and negotiated a new deal under which the new Austrian’s salary levels will fall below those of Tyrolean Airways’ and the two carriers will be merged and integrated in March this year.

    But none of the European majors has fundamentally transformed its cost base as drastic and as thorough as Iberia did. It could even be argued that these seemingly “cost-cutting” schemes are designed to contain cost growth, not slashing cost at all.

    At Lufthansa, for instance, its 5-year deal with 300 Eurowings pilots provides a 2.5% wage increase in 2015 and at least 2% in subsequent years and Union Verdi is seeking a 5.5% pay raise for the 55,000 employees it represents across the cabin crew, ground staff and Lufthansa Technik divisions. Further strikes this year such as the 2-day pilot strikes at Germanwings could also threaten to derail the progress at the Score cost-cutting programme, following 10 strikes that cost it €200 million in operating profit last year.

    “The bottom line is that these twin trends [rising wages and declining yields] will take us into the dangerous red zone if we do not take action to correct them,” Lufthansa board of directors members Karl Ulrich Garnadt and Bettina Volkens reportedly said.

    In constrast, there were 14% and 7% salary cuts for flight crew and ground staff, respectively, at Iberia; caps at pay scale and new entry levels at substantially lower costs with €35,000 annual salary for short-haul pilots and €20,000 for short-haul cabin crew were established. This led to a 19% reduction in short-haul crew cost per block hour over a 2-year period from 2012 to 2014. 3,803 or 70% of the 5,471 earmarked headcount reductions have also been completed by end-2014. By 2016, employee cost per available seat kilometre (ASK) will have fallen by 25% from 2012 level with similar capacity level. The saving will widen to 35% by 2020.

    In addition, integration of information technology (IT) systems, significantly reduced use of consulting, and the elimination of conference costs and discretionary expenses will slash non-labour overheads by 25% from 2012 level with the majority of these savings to be realised in 2015.
    Progress could be seen through the lens of Iberia’s declining employee cost as a percentage of revenue, which plunged from 30% in 2012 to 24.2% for the first 9 months of 2014, according to Aspire Aviation‘s calculations. British Airways’ figure dropped from 22% to just 20.6% over the same period and the overall International Airlines Group (IAG) from 24% to 21%.

    Air France’s figure, on the other hand, remained largely flat at 29.4% for the first 9 months of 2014, from 30% in 2012, whereas Lufthansa Group’s actually increased from 23% to 24.1%. In fact, Lufthansa subsidiary Austrian Airlines has the highest unit cost in Aspire Aviation‘s survey of 8 European carriers at 8.90 euro cents per available seat kilometre (ASK) in the first 9 months of 2014. Lufthansa’s figure of 8.43 euro cents per ASK would have been somewhat, if not considerably, higher had it not incorporated Germanwings’ figure into its own and distorted the picture.
    In all, Iberia’s right-sizing has seen its absolute size shrink by 20.7% in terms of capacity between 2008 and 2013, including a 12.81% reduction in 2013 from 2012 levels alone, after its transformation plan was implemented and by 2017 its workforce will have downsized by 25% from the 2012 headcount of 20,600.

    Yet “slash and burn” is not a panacea should top-line growth not be achieved or worse still, decline at a faster pace than cost reductions. In this regard, Iberia has virtually revolutionised its revenue management function and the way it sells its airfares in order to maximise the revenue intake.
    It adopted the Pros revenue management system (RMS), updated its significant origin and destination (O&D) lists and encouraged the purchase of pricier “structure” fare classes rather than promotional fare classes through increasing the spread or price differentials between fare classes, the latter of which accounted for 74% of Iberia’s total long-haul economy bookings, indicating significant upside potentials that could be realised. It expects a 14 and 11 percentage points increase on the structure fare usage rate on the Madrid-Mexico City and Bogota-Madrid routes in 2014 second-half over the first-half, both to 37% following the adoption of this practice.

    It is also forecasting a 27% increase in premium revenues on the Madrid-Mexico City route, 14% on Lima-Madrid, 10% on Madrid-New York John F. Kennedy (JFK) routes in 2014 second-half over the first-half after introducing its new Business Plus lie-flat capsule seats.

    Furthermore, Iberia, alongside its sibling British Airways’ hand-baggage only fares, in September 2013 became the first European legacy carriers in rolling out 3 different fare families for short-haul domestic and intra-European flights to better cater for passengers with different price elasticities and travel needs: “Basic” excludes seat selection and the first checked baggage, which are included in the intermediate “Classic” fare bucket, and “Flexible” featuring no rebooking fees, full refund and priority boarding.

    Coupled with the sale of exit-row seats and a free middle seat, Iberia saw its seating-related ancillary revenue skyrocket 165% and upgrading 157% from 2013 to 2014. Its new, simpler website also drove an 11% increase in conversion rates over the same period.
    Meanwhile, Iberia is said to be launching a premium economy class in 2015 in light of the widening gap between economy and Business Plus fares, Aspire Aviation‘s sources at its parent IAG say. It would be a long-time coming for Iberia since it shelved its first class offerings in October 2004.
    These developments have not gone unnoticed: the new Eurowings will similarly have 3 fare products, with “Best”, “Basic” and “Smart”. Its parent Lufthansa will also complete the installation of 7,000 lie-flat new business class and 3,600 premium economy seats by August and this fall, respectively.

    Simply put, Iberia has made significant strides in addressing the problem of under-collecting, where revenue efficiency in terms of revenue per available seat kilometre (RASK) will be further enhanced by the introduction of a premium economy class. This offers a wake-up call for Air France/KLM whose under-collecting problem is unbelievably severe – for each ASK being supplied in the first 9 months of 2014, the Franco-Dutch carrier only makes a 0.04 euro cents unit profit, versus 0.10 cents at Iberia, 0.17 cents at Lufthansa, 0.27 cents at British Airways (BA) and 0.61 cents at Swiss, Aspire Aviation estimates.

    After all, Air France is not new to the premium economy concept since introducing its product in April 2009, let alone the fact that Iberia was able to remedy this under-collecting issue without it, pointing to a significant problem with Air France/KLM’s pricing strategies.

    From fortress hub to specialised Latin America flying

    In its transformation, Iberia suspended unprofitable domestic and European flights, focusing solely on providing feed to its Madrid Barajas Terminal 4 hub, as 66% of its long-haul passengers in 2014 connect from its short-haul flights.

    This is reflected in its disproportionate capacity share at Madrid, with a 42% share inclusive of Iberia Express in 2014, compared to a 26% national share in the Spanish domestic market. Even its Iberia Express low-cost subsidiary, with 17 A320s serving 32 destinations, is designed to keep low-cost competition at bay in Madrid, as more than 80% of its passenger flows are point-to-point traffic susceptible to low-cost competition.

    This strategy appears to be working well: Ryanair’s capacity share at Madrid is merely 4%, against an 18% share in the Spanish domestic market, where the Irish low-cost behemoth faces a strong contestant in fellow IAG subsidiary Vueling which holds a considerably larger share at 29%. With Iberia Express’s stage length-adjusted cost per available seat kilometre (CASK) at 4.10 euro cents excluding fuel in 2014 first-half, 1.7% below Norwegian Air Shuttle’s 4.17 cents per ASK and 7.8% below easyJet’s 4.42 cents per ASK, this defensive strategy is proving effective in turning Madrid into an Iberia fortress, thus making it hard for other LCCs to penetrate.

    This short-haul decentralisation and fortress hub strategy pioneered by British Airways (BA) at London Heathrow is increasingly being emulated in Europe, with Lufthansa completing the decentralisation on all domestic routes originating outside Frankfurt and Munich to Germanwings, including the Munich-Düsseldorf route, on 8th January. Its Eurowings subsidiary will also have an eventual fleet of 23 Airbus A320s and 3 310-seat A330-200s operating out of Cologne serving point-to-point leisure traffic from October 2015 onwards under the SunExpress Deutschland licence with an up to 40% lower unit cost.

    But where the likes of Air France/KLM and Lufthansa are leaning on the low-cost platforms as if they are a one-size-fits-all solution, despite the real issue undermining the stranglehold of Lufthansa and Germanwings of the domestic market with a 71% capacity share and only a 16% low-cost capacity share, according to OAG; is rising costs that are fast becoming a concern for Germanwings as well – the International Airlines Group (IAG), and Iberia more specifically, is showing what is paramount in prevailing in an industry growing ever more sophisticated and segmented that demands more than a me-too competitive response.

    That is identifying and strengthening one’s unique specialist skill set that other aspiring entrants are difficult to develop. In Iberia’s case, it is striving to become a Latin America specialist with a Spanish-speaking secondary home market, whose Spain to Latin America daily passengers total 11,100, 63.2% more than the next-largest contender France with 6,800 daily passengers, and Italy’s 5,600.

    In terms to total bookings, Iberia commanded 1.903 million Europe-Latin America reservations between October 2013 and September 2014 with a 17.6% market share, versus Air France’s 11.5% share with 1.246 million bookings and TAP Portugal’s 11.2% share with 1.213 million bookings.
    In capitalising this unique home stretch, Iberia has allocated 53% of its 2014 total system capacity to Latin America, versus 19% to Europe, 13% to the USA and just 11% to the domestic market, the oneworld carrier said. It also has more daily flights to Latin America with 14 than any other carrier and has resumed services to Montevideo on September 1st last year, the aforementioned resumption of Havana flying in addition to a new codeshare partnership with TAM Airlines in Brazil which saw Belo Horizonte, Brasília, Fortaleza, Natal, Salvador, Florianópolis, Curitiba, Manaus, Brasília, Porto Alegre and Recife being added to Iberia’s route map from the same terminal at Sao Paulo that the two oneworld carriers cohabit.
    Its codeshare partnership with Mexico’s Interjet, Air Berlin, and 13 new routes to Edinburgh, Manchester, Naples and Hamburg to name just a few would all fit in its modus operandi of routing Europe-Latin America through its fortress Madrid Terminal 4 hub.

    Looking east

    Looking into the future, Iberia will look to the Far East in what it acknowledges as a network gap in its vision of converting Madrid T4 as a bi-directional hub with Asia-Latin America traffic growing at a 5.8% compounded annual growth rate (CAGR) between 2013 and 2017, according to the Spanish flag carrier.

    Fortunately enough for Iberia, geography is on its side. Madrid has shorter great-circle routings especially for North Asia such as Beijing, Shanghai, Seoul and Tokyo Narita than Middle Eastern hubs, exactly the reason why Air China has been routing the Beijing to Sao Paulo service via Madrid for years with around 63% of all passengers arriving in Brazil stopping at Sao Paulo first, according to the airport operator.

    Today’s travellers in North Asia and China can choose between westwards and eastwards origins and destinations (O&D) offerings with Middle Eastern, European and US carriers, and Iberia’s sibling British Airways (BA) flies to Beijing, Shanghai, Tokyo Narita, Seoul and Chengdu in this region. A Shanghai passenger travelling to Sao Paulo, for example, could feasibly fly 11,586 miles with Iberia via Madrid, the shortest such offering against 11,618 miles with BA via London Heathrow, 11,606 miles with Emirates via Dubai and 12,279 miles with United via Chicago O’Hare. With London Heathrow being congested and BA seeking to add further Asian destinations to its network first such as Kuala Lumpur in May 2015, Iberia’s Madrid T4 hub is well placed to handle any spill-over Asia-Latin America O&D demand for the International Airlines Group (IAG) as a whole.

    Similar advantages exist for Beijing and Tokyo Narita, with Beijing-Madrid-Sao Paulo’s 10,925 miles length shorter than Beijing-Dubai-Sao Paulo’s 11,230 miles offering; Tokyo Narita-Madrid-Sao Paulo’s 11,899 miles also shorter than Dubai’s 12,559 miles length, although Iberia’s possible Tokyo Narita offering would be some 400 miles longer than transiting through Chicago O’Hare.

    However, Iberia needs not rely solely on Asia-Latin America O&D demand to make any potential Chinese routes, such as the Shanghai Pudong route that makes most sense due to its status as China’s financial hub, work. In fact, Spain is gaining popularity with Chinese tourists with its fashion, rich culture, wine luring wealthy Chinese to spend lavishly in the country. According to Global Blue, a global duty-free retailer, a Chinese spends €2,040 on a tour package plus €167 per day on fashion items on average, doubling that of a typical Chinese tourist’s expenditure in Germany. Over 300,000 Chinese tourists are said to have visited Spain in 2014, which is growing at a 20-25% annual rate to reach 1 million by 2020, according to the Chinese Friendly Association of Spain.

    While Barcelona accounts for more spending from Chinese tourists and is generally more popular than Madrid, with the Spanish textile industry body Alcotex saying in a 2012 report that Barcelona accounted for 44%, versus Madrid’s 31% of Chinese tourist spending on fashion items, and the Barcelona Air Traffic Intelligence Unit pointing out that Barcelona has a larger share of Asia/Pacific intercontinental traffic at 44.9% against Madrid’s 41.2% in the first 9 months of 2014, it is nonetheless not difficult to see a possible Shanghai Pudong-Madrid route work well combining Asia-Latin America O&D demand and point-to-point traffic to Madrid. Besides, O&D analysis is often supply-driven much akin to a self-fulfilling prophecy and it is technically feasible for Iberia for offer multi-city itineraries with a long-haul flight to Madrid first and then connect onto Vueling or Iberia Express domestic flights after finishing a Madrid visit.

    Needless to say, it is a pivotal to grow Iberia’s fleet rather significantly to support this Chinese expansion, since the 8 A350-900s and 8 A330-200s on firm order are planned for replacing 16 A340s in its existing long-haul fleet whilst keeping some A340-600s, most likely the 5 high gross weight (HGW) examples for hot-and-high missions to Mexico City, Quito, Bogota and San Jose.

    Yet with IAG holding 18 firm orders plus another 18 on options for the 308-tonne A350-1000, as well as 10 A330 options, IAG could exercise these A350-1000 options or transfer British Airways’ order to where it is needed most to replace the 380-tonne A340-600 HGW at Iberia, which provides more uplift under hot-and-high conditions but is fuel-guzzling, once the 12% return on invested capital (ROIC) hurdle is cleared, instead of having 38% of total seats still being flown by the inefficient A340-600s by 2020 under the current plan.

    In conclusion, while critics may claim that Lufthansa is merely making less profit, unlike Iberia’s grave situation a few years ago, it is no excuse to kick the can further down the road. Deep structuring is long overdue at these European legacy carriers and they can ill-afford to wait or otherwise it may very well be ‘too little, too late’. Iberia’s lesson has shown what makes it more than a phoenix rising from the ashes, is that it is no longer sufficient to rely on cost reductions alone, but also finding its specialisation and serving a unique role – Latin America flying in Iberia’s case that enables it to grow on a sustainable and profitable basis going forward.

    FUENTE: The quiet rebirth of Iberia | Aspire Aviation

    En ESPAÑOL, traducido por Google-Traductor:

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  2. #2
    Usuario Foroaviones
    30 may, 07
    Nos han jodido, con peores condiciones laborales yo también lo hago
    “If you think education is expensive, try ignorance”

  3. #3
    ▀ ▄▀ ▄▀ ▄▀ ▄▀ ▄▀ ▄▀
    29 ago, 11
    en las cloacas del cielo, en los prados del subsuelo
    " Iberia’s employee cost falls from 30% of revenue in 2012 to 24.2%"
    Nada mas que decir
    Esta historia que pudo ser verdad, parece una mentira, la vamos a contar...

  4. #4
    Usuario Foroaviones
    30 may, 07
    Que les pregunten por dónde se han pasado el convenio colectivo...
    “If you think education is expensive, try ignorance”



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