October 22, 2009 8:04 pm

Iberia eyes new airline for short-haul flights

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Iberia, the Spanish flag-carrier, plans to create a new airline to group its short- and medium-haul services in the latest move to cut costs and shed unprofitable routes.

The airline, which has been in merger talks with British Airways for more than year, said on Thursday night it would focus on its more lucrative long-haul routes, mainly to Latin America. It planned to lay on more of these services, it said, and make a “similar reduction” in the short- and medium-haul business.

By creating a new company for domestic and European services, it would also be able to “change the operating model for these routes”, it said. This would mean the gradual introduction of new work practices and staffing levels, among other efficiency drives, according to sector analysts.

Iberia said it planned to implement the changes by 2011. Like most carriers, Iberia has been hit hard by the global downturn, and is headed for its first full-year loss in more than a decade.

The success of Spain’s high-speed train network has also forced it to scale back dramatically some of its most lucrative domestic routes, while low-cost carriers have hit it both locally and across Europe.

In August, the company announced a reduction in capacity of 6 per cent for this year, compared with a previously-announced 4.3 per cent. It also said then it would postpone delivery of one long-range Airbus 340-600, and ground three short- and medium-range aircraft on top of the five already stripped from the fleet.

On Thursday, the carrier went further, announcing a hiring freeze until 2012, an across-the-board pay freeze for the next two years, early retirement for crew members, and lay-offs for 200 ground staff.

Rafael Sánchez-Lozano, who was named chief executive as part of a top-level shake-out in July, said the current business model was “unsustainable”.

“The air travel industry has never experienced such a dramatic situation as the current one,” he said on Thursday night. “It is essential for Iberia to transform itself with imaginative solutions if it is going to have a solid and viable future.”

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