Iberia Group aims to cut €200 million as first-quarter loss rises

Iberia Group unveiled a broad cost-cutting plan intended to save more than €200 million this year as it reported a first-quarter consolidated net loss of €92.6 million ($122.3 million), a steep deterioration on the €0.4 million lost in the year-ago period.

Citing a large decline in overall demand and business class traffic in particular, IB said operating revenues plunged 15.6% to €1.09 billion against a 6.5% drop in operating expenses to €1.25 billion. Operating loss ballooned to €147.3 million from €28.3 million. The Spanish airline said it has low visibility regarding 2009 full-year results but warned that if the current extraordinarily difficult conditions persist it is "unlikely" to post a profit.

The "severe contingency plan" being implemented immediately comprises an €80-€90 million cut in investment spending and operating savings of €110-€125 million to be achieved through a cut in capacity (it parked five A320s this month) and temporary layoffs, a hiring freeze and nonrenewal of temporary hiring contracts. Payroll containment measures are under study, along with a moratorium on pay rises and a freezing of executive salaries. Investments that are not related to improving customer services or that have no direct and immediate impact on earnings are being put on hold.

Iberia said the capacity cuts will be "selective and temporary, and will not entail withdrawal from any markets." Delivery of new aircraft will be postponed.

"For 2010 we envisage a probable return to profitability with the impact of our contingency plan if the fuel price remains at current levels, even with today's traffic and revenue figures," Chairman and CEO Fernando Conte said in a conference call with analysts. He remained "positive on the outcome of [merger] negotiations" with British Airways, admitting it was taking longer than expected owing in part to the volatility of financial markets and its impact on BA's pension deficit as well as the difficulty in the sector.

IB trimmed first-quarter capacity by 6.1% to 15.37 billion ASKs but traffic declined 9.5% to 11.75 billion RPKs, pushing down passenger load factor 2.9 points to 76.5%. Operating revenue per ASK fell 10.1% year-on-year to €7.14 cents while CASK decreased 0.2% to €8.10 cents. Passenger yield narrowed 9% to €6.42 cents.