BA dragged down by pain in Spain

SOARING fuel costs and striking staff threaten an airline’s very survival. No, we’re not talking about 2010, when a long cabin crew strike and high oil price crippled British Airways. Instead it is Spain’s Iberia – owned by BA parent IAG after the two airlines merged last year – that is proving such a headache.

A quick glance at IAG’s first set of annual results since the merger leaves you thinking that Willie Walsh, the group’s buccaneering chief executive, was mad to combine the groups in the first place.

BA is flying high because of its strong offering in first and business-class transatlantic travel, which is benefiting from a rebound in the American economy. It contributed €592m of operating profits in 2011.

Iberia, which is more exposed to the Eurozone troubles, is also being hit by a pilot’s strike over the launch of Iberia Express, a new budget airline that will operated with modernised working practices. It posted a €61m loss in 2011.

It’s easy to come to the conclusion that BA would have been better off as a standalone company, but we don’t subscribe to that point of view. Walsh managed to break the union at BA and there is no reason to think he can’t do the same at Iberia.

If he can drag the old-fashioned Spanish carrier into the 21st Century, as he did with BA, the €74m of synergies achieved so far will begin to look like small fry.

The first half of this year doesn’t look good. The oil price is only going one way; demand in Europe will remain depressed; and the strike among Iberia’s pilots is costing the firm €3m a day.

But Walsh will have his eye on the bigger prize. More mergers, more synergies and more profits. He knows consolidation was the only way to save BA – and he hasn’t finished yet.