Iberia’s death: stranger things have happened


With a solemn voice, a trade union representative of National Paradores (state-owned luxury hotels) announced to the media that they “would fight” against the workforce adjustment plan that the public company is going through.

Although this is not by any means common, his position may not be the wisest for a company that will face around €110 million losses by the end of the year. For any firm this numbers would mean technical bankruptcy.

Against dialogue positions of Union representatives from other sectors, unions of companies in the tourism sector as Iberia or National Paradores have decided to “fight” with the stubborn reality despite these dramatic numbers, putting at risk the viability of societies and doing immense damage to consumers, who ultimately will pay the price.

Iberia, a company in crisis for decades as a result of an impossible structure and those who have decided to “fight”, is a paradigmatic case. It reflects the narrow-minded approach of some trade unions, ignorant of what that commercial aviation has had to go through since the mid-1990s (challenges such as the liberalization of the sector, a terrifying rise in fuel prices, September 11th, the emergence of the low cost airlines or an unprecedented economic crisis).

Companies have adapted to the new conditions of the market, getting more customers for a cheaper price, with capacity reductions and cost savings policies, aware that only that way the slow periods can be overcome without embracing irrational policies of filling planes at any price.

Those airlines that have not made adjustments, have simply disappeared. This is where the expression “stranger things have happened” fits. No one has an insurance policy to protect his future and Iberia less than anyone else. The economic crisis means a huge challenge to the former Spanish flagship carrier. Nobody like it is suffering the consequences of the fall in consumption, especially of Spanish companies, whose executives are its more profitable clients.

Dozens of airlines have gone down the drain in the last years. Their only common denominator is that they did not want or were not able to adapt to the reality of the market–the ‘market’ that many Union leaders are keen to despise.

Thus, many airlines have suffered the consequences of their lack of adaptation to a changing and often hostile environment for business. For example, Swissair, Sabena, Air Madrid, Varig, Delta, Alitalia, Japan Airlines, Air Comet, Canada 3000, Avianca, 2010, Spanair, Malév Hungarian Airlines, TWA and Northwest. The crisis has not respected names, surnames or a bright past. Those who have not implemented orthodox management practices have simply got stuck in the ditch.

Take the case of Brazilian Varig, which became one of the most respected companies in the world and then became a reference of administrative and management disaster.

Controlled by its employees through the Ruben Berta Foundation (the company founder’s name), Varig left its problems grow while awaiting a solution from the government. This never came and the airline never accepted workforce not benefits cuts and refused to undertake budget control.

When it filed for bankruptcy Varig had an average of 26 pilots for aircraft, while its more direct Brazilian competitor, TAM, had exactly half of that. By the end of its days, Varig had 9,400 employees for 54 planes. 1,400 were pilots or copilots, while the same competitor had 9.669 employees, and 1,034 pilots or copilots, although the company operated a 50% more aircrafts than Varig. When Varig started sinking in 2003, the company had 201 employees per unit, while their Brazilian competitors had an average of 86. This is only a sample of the mess of a company that was all in the sector of international commercial aviation and that today does not longer exist.

The future is not easy for traditional commercial aviation in Europe and the trend is one of heavy losses and a drop in global market share. Only two facts: in 2012 the Association of European Airlines (AEA) estimates that this year its associate air carriers will lose between €1 billion and €2 billion; in the first half of 2012, the main companies (Lufthansa, Air France, Iberia and American Airlines) have accumulated losses of almost €3.2 billion.

Not everything is a matter of “fighting” against a workforce reduction plan.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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