Iberia Case

"Iberia is in a fight for survival," said the Spanish subsidiary's chief executive, Rafael Sanchez-Lozano in November 2012. "It is unprofitable in all its markets”.

"Unless we take radical action to introduce permanent structural change, the future for the airline is bleak." (http://www.bbc.co.uk/news/business-20264407)

The following month in December 2012 the president of Iberia, Antonio Vázquez, wrote a letter in which he explained the difficulties the company had been facing, their action plan for the future, denying that the merge with British Airways was negative for Iberia because it intially resulted in 100 million euros of benefits in synergies.

Iberia president’s letter (late December 2012)

• Iberia has bigger costs than profits (losing 1 million euros per day)

• More competitors (low cost airlines boom)

• Important factors of the Iberia crisis:

 Spanish economic crisis (euro decreasing)

 High cost of fuel (worldwide increase)

• Design of “Plan de Transformacion”

 Reduction of employment and salaries

 Multimillionaire investment in fleet, product, installations, and improvement in customer services

 Elimination of some routes and growth of another ones

• British Airways is not guilty of the crisis, it has brought profits of 100 million euros in synergies

• Labor union response has been negative to negotiation (strikes)

History - Iberia first airline in Spain

Iberia is a founding member of Oneworld, the alliance of airlines around the globe, which together serves some 800 destinations in 150 countries. Company’s hub is located in Barajas, the main airport serving Madrid and Spain which has been designed to handle 70 million passengers annually.

The Spanish national airline Iberia was founded by the initiative of HoracioEcheberrieta in 1927. Within a year, the company was sponsored by the Spanish government king Alfonso XIII to provide postal transport between Madrid and Barcelona. Twelve years after its founding, Iberia became a truly international airline when it began regular service to Lisbon, next to Paris and Rome in Europe, and also to Buenos Aires and Montevideo across the South Atlantic.

Iberia was not only the first airline in the country, but also the first company to fly between Europe and South America after World War II.

The company had become a leader when it came to customer service. Iberia launched the first international customer loyalty program in Europe, and also the pioneering web site www.iberia.com.

The company grew at a rapid pace. Iberia has served as the official airline for many events, including the Olympic Games were held in Barcelona, and the World Expo in Seville, and sponsored many others.

In September 1999 Iberia joined the Oneworld Airline Alliance along with American Airlines, British Airways, Air Lingus, LAN Chile, Cathay Pacific, Finnair, and Qantas.

Since 2010 the company began to suffer record losses in all markets, Iberia is still struggling with this problem while making plans to restructure the company to reach the same levels as before the crisis in the company.

The unemployment rate in Spain reached a record level of 25 percent in 2010. Large companies - such as Telefonica - make drastic cuts, fighting the long recession in the country.

IAG set a desire to reach an agreement with unions on job cuts, they intend to complete the process before the start of the tourist season in 2013.

"We want to give the future of Iberia, now we have the means to carry out these changes, and we can not wait any longer." - Said president of investors Iberia, Rafael Sanchez-Lozano.

Iberia, Europe's largest carrier in Latin America, is faced with competition from low-cost airlines and high-speed trains, strikes and a deep economic crisis in Spain. Getting rid of it fast cash, because the revenues do not cover the high operating costs.

Willie Walsh the CAO of said Iberia is struggling to survive and had to be transformed. The company want to reduce the cost base, to be able to achieve growth and profitability in future.

He even explained that the problems were structural and reach back to a time before the current economic crisis.The scale of the crisis was underestimated by the market and Iberia itself.

Customer preferences

Iberia is a customer-oriented company which apart from ordinary programs offers the possibility of arranging special flights. The service is customized and adapted to requirements as: dates, timetables, routes, on-board service. (Iberia.com)

A reward for your trust

Iberia has a program called “Iberia Plus” that aim to reward their best customers with free flights and exclusive benefits such as hotel accommodation, car hire and much more. It is done by collecting points. The same type of program can be offered for companies.

The customer has got the power in today’s society by being able to choose among many different choices. The mission of the airlines is to attract them of course.

An important factor to be considered is the customer experience when flying. The customer experience is all about how the customers view, engage with, react to and value the experiences they have with an airline.

The airlines have to choose the right customer segment to be able to deliver the desired customer experience. Customer preferences change so they must be prepared to make quick adjustments at times. They must also differentiate themselves from other airlines.

It is important to be handed the best options when flying in the same time as being in control of choices.

In a modern society we are expecting online shopping, travel search companies, mobile technology or social media to be involves in one way or another. The airlines always have to be one step ahead. As important as it is to make a good impression before the flight it is just as important to make a good impression during the trip. That is when the customer actually experiences how it is to fly with the airline.

Many consider the price and schedule more relevant than the actual brand. If something goes wrong the airline will be blamed even if you bought the ticket from a third part.

Eventhough the company strives to satisfy their customers it has been revealed that Iberia suffers from a bureaucratic structure that makes it less flexible compared with newer competitors, which results in poor customer service. Skytrax, the airline review website, gave the Spanish group’s economy class short-haul service a two-star rating, indicating a “poor product”. (ft.com)

http://www.ascendforairlines.com/2012-issue-no-2/customers-heart-airline-

Merge with British Airways

IAG is one of the main airline groups in the world. It was founded January 2011, as a result of the merger between Iberia and British Airways. IAG is registered as a Spanish company with tax domicile in Madrid; its financial and operational headquarters are located in London. Both BA and Iberia has continued to operate as independent brands and run their businesses in the same way they were running before the merger. IAG board consists of 14 members, seven from BA and seven from Iberia. (Iberia.com) They decided to have a joined management structure that went under the name IAG Group. BA shareholders have 55% ownership of the company. (www.news.bbc.co.uk, 2011). By merging they were hoping of improving the bad conditions the two airlines were experiencing in a highly competitive and tough market.(www.economist.com) The two companies were not alone experiencing problems – the International Air Transport Association, estimated that the total losses for the world’s airlines 2009 would be around $11 billion. The crisis has slowed down ticket sales (especially the premium priced and Business class tickets).The main motivation for the merge was cost savings. A merge is supposed to give the operators more pricing power combined with increased profits. In the EU there is lots of competition among airlines – only in Europa there are more than 300.(ft.com) By the fifth operating year the new group were planning to save around €400m annually by cutting overlapping routes, and combining maintenance, office functions and business-class lounges. The pair may also have more negotiation power when it comes to buying new planes from Boeing and Airbus. The goal was definitely to obtain economies of scale.

(http://news.bbc.co.uk/2/hi/business/8359121.stm)

IAG has 377 aircrafts flying to 230 destinations, carrying 69 million passengers each year. It is the third largest group in Europe and the sixth largest in the world, based

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