ANALYSIS:The merger between BA and Iberia will make it the third-largest carrier in Europe, writes JANE WALKER
IT HAS been a long courtship, and it ended with the announcement of an engagement on Thursday night. But it will almost certainly be another year before the marriage between British Airways and the Spanish national carrier Iberia is finally consummated.
The merger will make the new carrier the fifth-largest in the world and third-largest in Europe. "Such a merger was inevitable if they hoped to compete with other European airlines such as Air France, KLM and Lufthansa who have consolidated their services," said the Madrid daily El Paíswhich also welcomed the news that Willie Walsh is to remain as BA chief executive.
Robert Tornabell, professor of finance at Esade business school in Madrid, also approved of Mr Walsh’s appointment. “Walsh will make a much better chief than [Iberia chairman] Antonio Vazquez, a banker. Walsh knows the airline business from the inside and understands the psyche of the crews – particularly the pilots. In addition an Irishman will be more readily acceptable in Spain than an English businessman would be,” he said.
But Tornabell warned of industrial problems on the horizon. “Iberia’s cabin crews have been staging wildcat strikes for the past month over threatened staff cuts, forcing the cancellation of hundreds of flights. British Airways cabin crews have also threatened industrial action,” he said.
BA has almost 40,000 employees on its payroll, and Iberia just over half of this figure. Yesterday Walsh admitted there would be some job losses. Said Tornabell: “It is almost inevitable that some jobs will be lost. This is not a marriage of equals, and it is likely that many of these losses will be on the Spanish side. However, this is a problem which worries personnel rather than users, who will probably gain with better service and lower prices.”
Iberia, which will hold a 45 per cent stake in the new company, fought a tough battle during the 16 months of negotiations. Most specifically it demanded a firm guarantee that it will not be responsible for British Airways’ huge pension deficit.
Under the agreement, BA will hold 55 per cent of the new company and Walsh will serve as chief executive and joint chairman from the London offices.
Spanish pride has been soothed with the announcement that Vazquez will be co-chairman and the headquarters will be in Madrid.
Tornabell says he doesn’t believe that the two carriers could have found better partners. “British Airways, which flies to 141 destinations, dominates the North American and Asian routes. But Iberia, which flies to 109 destinations, is stronger in South and Central America. So both airlines can benefit,” he said.
The two airlines already enjoy a code-sharing agreement under the One World Alliance and staff at Madrid’s Barajas airport are hopeful the merger will result in increased traffic there.
But there is concern at Barcelona’s El Prat airport, which only recently inaugurated a new terminal. Staff there fear that if Madrid becomes an important transatlantic hub they will lose business unless a decision is made to use Barcelona as the hub for eastern and Asian routes.
There are still many problems, such as on-board service, to be ironed out. Iberia already charges for food and drink, which is free on BA. Mr Walsh was not willing to be drawn when questioned on this. Another question is whether Iberia will continue with its planned low-cost airline to compete on short-haul routes with carriers such as Ryanair and Easyjet.
