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IAG Cuts 4,500 Jobs at Iberia as Profit Sinks


IAG CEO Willie Walsh is slashing 4,500 jobs at Spanish subsidiary Iberia in an effort to get the airline’s costs closer to those of other European carriers. Dow Jones’s Steve McGrath says the success of Walsh’s move is now up to the unions. Photo: Getty

LONDON—International Consolidated Airlines Group SA IAG.MC -0.24% Friday took an ax to its loss-making Iberia subsidiary in a move that will entail 4,500 job cuts, as the airline owner reported a 24% drop in profit.

The restructure will also involve a reduction in Iberia’s fleet by 25 aircraft and a 15% cut in capacity.

“Iberia continues to cause concern and we are announcing today a restructuring plan to introduce permanent structural change across the airline,” said IAG Chief Executive Willie Walsh. “Iberia is in a fight for survival and we will transform it to reduce its cost base so it can grow profitably in the future.”

Net profit at IAG, which also owns British Airways, fell to €202 million ($258.7 million) for the three months to Sept. 30, from €267 million a year earlier, as fuel costs rose 20% to €1.66 billion. Revenue increased 13% to €5.06 billion, while operating profit, which strips out exceptional items, fell 26% to €270 million.

IAG attributed Iberia’s problems to its exposure to Spain’s ailing economy, competition from budget carriers such as Ryanair Holdings RYA.DB +1.52% PLC, and an unresolved dispute with the local pilots’ union over its recently launched discount airline Iberia Express.

“Iberia is in a fight for survival. It is unprofitable in all its markets,” said Rafael Sanchez-Lozano, Iberia’s chief executive. “Unless we take radical action to introduce permanent structural change the future for the airline is bleak.”

The company said it hoped to reach an agreement with unions by Jan. 31, 2013, but warned of more cuts if talks were to stall.

“If agreement is not reached, deeper cuts and a more radical reduction in the size and scale of Iberia’s operations will take place to secure the natural long-haul traffic flows at Madrid and safeguard the company’s future,” IAG said.

IAG, the result of a merger between British Airways and Iberia in June 2010, flagged a radical restructuring of the Spanish airline when it reported its first-half earnings in August.

On Thursday, IAG said it had made an offer to buy the 45.85% stake in Spain’sVueling Airlines SA VLG.MC -0.29% that it doesn’t already own, in a deal that values the carrier at €209.3 million. Vueling is a low-cost specialist that operates flights to 74 domestic and European destinations from its Barcelona base.

“Vueling is clearly attractive because it has a lower cost base than Iberia,” said Liberum analyst Peter Hyde. Liberum estimates that Iberia’s domestic and intra-European Union operations, which is where the majority of its losses come from, have a €73 cost per seat, 51% higher than Vueling.

IAG’s mixed fortunes contrast with its larger European peers Deutsche Lufthansa AGLHA.XE +1.09% and Air France-KLMAF.FR -0.36% which last month reported stronger-than-expected third-quarter earnings, partly due to cost-saving programs.

IAG gave full-year guidance for an operating loss of €120 million, including losses at bmi, which it acquired earlier this year and has now integrated fully, but before Iberia’s restructuring costs.

Corrections & Amplifications
IAG’s restructuring plan for Iberia will involve a 15% cut in capacity. An earlier version of the story incorrectly said the plan would involve a 25% cut in capacity.

Original Article: http://online.wsj.com/article/SB10001424127887323894704578108163250641952.html

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