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Fast launch of contingency plan kept Iberia in the black

The Iberia<.> Airlines group managed to log a 5.6% gain in operating income in 2001, while reducing…

The Iberia<.> Airlines group managed to log a 5.6% gain in operating income in 2001, while reducing unit operating costs by half a point and posting an operating profit of EUR4.9 million. Ordinary profits came to EUR31.1 million., Iberia group`s consolidated earnings in 2001 amounted to EUR53.1, some EUR150.7 million euros below the 2000 figure.

The airline industry had a bad year in 2001 as the world economy slowed, and the situation was aggravated dramatically by the impact of the September 11 terrorist attacks in the United States. These circumstances provoked an anomalous fall in total seat demand, which was most severe in the business segment, especially in the final quarter. Meanwhile, fleet insurance costs soared. In this bleak context, Iberia suffered additionally from labour troubles, the work-to-rule by pilots in February and March, and the pilots strike at the start of the tourist season in June and July.

Key facts

  • In 2001 the Iberia group reacted quickly to these exceptional circumstances, devising and implementing an anti-crisis plan whereby it cut capacity, costs, and improved liquidity. This plan can be credited with keeping the airline in the black, with consolidated net earnings of EUR53.1 million.

  • The growth of revenues (+5.6%) and the containment of costs (-0.5%) led to a 9.5% rise in EBITDAR, which amounted to 13.8% of revenues. Both the EBIT and ordinary earnings were positive, no small achievement in one of the worst years in the history of commercial air transportation.

  • Iberia signed new contracts with employees granting a wage increase amounting to the cost of living (CPI) plus 0.5% in 2001, and the cost of living in the next years. The conflict with the pilots was settled via an arbitration ruling, linking future pay hikes to earnings, and establishing a dispute resolution committee. The new arrangements should ensure labour peace throughout the four-year duration of the contract.

  • Iberia completed the substitution of its key short- and medium-range fleets of B727s, DC9s, and A300s, while also replacing its long-haul DC10s. By the end of 2002 the airline will fly only five different aircraft models, which will help reduce expenses, while enhancing operating efficiency and the utilization of aircraft.

  • Despite the unfavourable circumstances, the Iberia group managed to improve its net cash position (Treasury + Short Term Financial Investments – Interest-bearing debt) by EUR187 million, and despite large investments, its total leverage (including operating leases) is slightly below 70%.

  • Fourth-quarter revenues fell by only 5.9%, and December witnessed a return to income growth with respect to December, 2000. Meanwhile, unit costs declined by 5.9%, thanks chiefly to lower payroll and fuel costs, and in spite of higher insurance charges.

  • Iberia expects 2002 to be a year replete with uncertainties and difficulties, but, barring additional unforeseen and exceptional events, the company is confident that it will again post positive operating and net results.
  • Theodore Koumelis
    Co-Founder & Managing Director - Travel Media Applications | Website

    Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.