13th Feb 2014 11:24
LONDON (Alliance News) - International Consolidated Airlines Group PLC Thursday said Iberia has finally reached agreement in principle with pilots' union SEPLA to introduce permanent structural change and improve the airline's viability, a deal that is key to turning around the struggling business.
IAG was formed in 2011 when British Airways and Iberia merged under one holding company. The group added Spanish airline Vueling to its stable last year. However, since its formation, British Airways has been performing well while Iberia has lagged, weighed down by legacy issues that meant its staff costs were comparatively high in an airline industry that has been seeking to reduce those costs over the last decade.
IAG Chief Executive Willie Walsh had turned British Airways around partly by reducing its high staff costs. It took several years as pilot and cabin crew unions were resistant to the changes brought in, but paid dividends in terms of improved profitability. Walsh has been trying to get similar agreements at Iberia.
The Spanish airline had put forward restructuring proposals in November, which were rejected by unions, and had then put forward less-stringent proposals in January, which unions also rejected at that time. However, the pilots union has now come to an agreement in principle, meaning the airline now has to get a deal with its cabin crew and baggage handlers.
In its statement Thursday, IAG said the deal with Iberia's pilots union will mean fundamental productivity improvements and a salary freeze until 2015 and then increases linked to the airline's profitability.
Pilots had already had their salaries cut by 14%, but were facing a further 4% cut. That 4% cut has now been scrapped in return for the agreed productivity improvements.
IAG said the deal will facilitate the growth of Iberia and its Iberia Express operation and heralds a new positive working relationship between Iberia and the pilot union after years of conflict.
"This groundbreaking deal reduces the cost structure and provides the foundation for the airline to grow profitably. A strong and profitable Iberia can protect jobs in the long term and boost tourism which is a key driver in Barajas and Spain's economic recovery," Iberia Chairman Luis Gallego said in the statement.
"Luis has deservedly won the respect of the industry, his colleagues and the trade unions. Permanent structural change was the only way to save Iberia from slow decline. This agreement marks the beginning of its future," Walsh said.
IAG launched Iberia Express in April 2012, moving Iberia's short- and medium-haul operations into a new entity with a low-cost base better able to compete with the likes of easyJet PLC and Ryanair Holdings PLC. Its operating costs were up to 30% lower than those of Iberia, but further expansion had been threatened as unions resisted further cost cutting.
"This agreement also enables the growth of Iberia Express with a competitive cost base and provides promotion opportunities for current Iberia and Iberia Express first officers. Iberia Express will help make Iberia profitable and stronger, by providing short haul feed, and will provide Spanish competition to low cost carriers," Gallego said.
Iberia's struggles with its unions aren't over yet. It is still battling to get an agreement with cabin and baggage handler unions. The UGT union in late January threatened strike action after rejecting the revised and less-stringent labour deal put forward by Iberia management, although it has entered arbitration first as required under Spanish law.
IAG shares were down 0.4% at 427.94 pence Thursday morning.
By Steve McGrath; [email protected]; @stevemcgrath1
Copyright 2014 Alliance News Limited. All Rights Reserved.
Related Shares:
International Airlines