Contingency plans takes priority for Iberia

By Graham Dunn

Spanish carrier Iberia's chief executive Fernando Conte remains confident of completing merger negotiations with oneworld partner British Airways, but is putting his immediate focus on contingency measures to counter the downturn.

Iberia detailed contingency measures aimed at generating cost savings of up to €125 million ($170 million) and cutting investment spend up to €90 million after its losses widened in the first quarter. Iberia made a first quarter net loss of €92.6 million after revenues were sharply hit by the economic downturn, compounded by a pilots' work-to-rule and weather cancellations in January. Total revenues fell 15.6% to €1.05 billion for the period, including a 26% and 17% fall in cargo and passenger revenues in the first quarter respectively.

Contingency measures include increasing its planned capacity cuts for the year from 1.7% to 4.3%, led by cuts in the domestic and medium-haul market. These cuts will see Iberia ground five Airbus A320s and pushback delivery of an A340-600 from October into September 2010.

"We are ready to make further cuts if necessary, but we think this reduction will be enough," says Conte. While reiterating recent guidance that the carrier is unlikely to make a profit this year if current conditions persist, Conte addsIberia's contingency actions mean it envisages a return to profit in 2010 if fuel price remain at current levels "even at today's traffic revenue figures".

Iberia has been in merger talks with its oneworld partner British Airways since the summer and theseappeared to be gaining momentum earlier this year. "We continue with our negotiations with BA," says Conte, noting they have taken longer than originally forseen. "But we are currently mainly focused on our own contingency plan and its targets which we believe is the most important and immediate challenge for our company. However, we remain positive on the outcome of the negotiations."