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Iberia to create new airline for short- and medium-haul routes

Oct 26, 2009

MADRID - Spain's national carrier Iberia will create a new airline to handle its short- and medium- haul routes in a bid to confront declining revenues amid the economic crisis.

Iberia, which is in merger talks with British Airways, will concentrate on long-haul flights, "where Iberia is market leader, on those that connect Europe and Latin America, in order to maintain and increase this lead," it said.

The short- and medium-haul routes, where competition is fierce, would be handled by "a new airline based in Madrid which will feed and distribute traffic to Iberia’s growing long-haul network," Iberia said in a statement.

The new airline is to be set up by 2011.

The move was part of a plan "to address the dramatic situation now faced by the airline, with declining revenues, weak demand and mounting losses."

The board also approved other measures to improve its financial situation.

These include a hiring freeze for the duration of the plan, a company-wide wage freeze in 2010 and 2011, lay-offs of all cabin attendants older than 55, an expansion of the current lay-off plan to cover about 200 ground employees and additional savings of up to 37 million euros a year in overhead costs.

"The airline industry has never experienced such a dramatic situation," the statement quoted Iberia CEO Rafael Sanchez-Lozano as saying.

"It is essential for us to use imaginative means to transform Iberia into a sound and viable project. The measures prescribed in Plan 2012 are aimed at bringing Iberia back to profitability."

The company announced in August it had plunged into the red in the second quarter as the global economic crisis battered the industry, recording a net loss of 72.8 million euros (109.2 million dollars).

It made a net profit of 21.2 million euros in the same period in 2008.

The Spanish national carrier and BA announced in July 2008 they intended to merge in a planned all-share transaction that would create one of the biggest airlines in the world.

But since then the global economic downturn has hit both airlines, complicating the talks which have also been hampered by Iberia's concerns over BA's huge employee pension plan deficit.

Iberia to create new airline for short- and medium-haul routes
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Source: AFP

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