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Iberia
Airlines Airbus A340
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The legendary investor Warren Buffet once said
that if he had been present when flying pioneer
Orville Wright took off, he would have shot him
down as a public service to future capitalists.
Buffet's point was that airlines rarely make a profit,
yet investors continue to pour money into them.
The Spanish airline Iberia is one of the few exceptions.
In the past few years the carrier that once conformed
to the Buffet theory has become europe's most profitable
scheduled carrier.
In the third quarter of 2003, the latest figures
available, Iberia turned in a net profit of 79.54
million euros ($100 million). While this was lower
than the same period in 2002 by some 24 percent,
the group still expects year-end results to show
solid growth and strong profits.
Iberia's cash in hand is 1.2 billion euros ($1.5
billion), and its load factor -- the percentage
of sold seats on the company's aircraft -- reached
an all-time high of 70.9 percent in January.
It was not always thus. In 2002 Iberia celebrated
the 75th anniversary of its founding on June 27
1927 when the airline began scheduled services.
During those 75 years nearly 500 million passengers
have flown with Iberia, placing the company among
the five largest European airlines, and making it
the leader on routes connecting Spain with the rest
of Europe and Europe with Latin America.
In 1946 it broke new ground for a European airline
by being the first Europe-based carrier to fly to
South America. In 1974 it launched Europe's first
walk-on shuttle service, linking Madrid and Barcelona.
That same year it established the "Red Jackets"
uniformed ground staff with the mission of providing
special service to customers and to resolve on-the-ground
problems.
In 1991 Iberia set up Europe's first international
airline Frequent Flyer program, Iberia Plus, and
in 1996 the airline launched its website -- www.iberia.com.
But Spain's national carrier also posted chronic
losses.
The turnaround came shortly after going public
in 2001 when the airline entered into so-called
synthetic leasing arrangements with Japanese and
German companies, a complex financial operation
which, simply put, reduces interest on the debt
through tax benefits.
At the same time, Iberia focussed on expanding
its long-haul market to Latin American, now possibly
the most important contributor to its growth. The
airline is in the unique position of being the only
foreign airline to effectively run a "hub operation"
in the United States. Four of its Airbus 320s, each
with a 114 passenger capacity, are permanently based
at Miami International Airport for the onward flight
to Central American countries that can't handle
Iberia's 747 Jumbos coming in from Madrid.
"For us, Miami is the real capital of Latin
America, " says Jaime Perez Guerra, head of
Iberia's international press office. "The importance
of Miami for Iberia's Latin American operations
cannot be overestimated."
Two years ago, Spain's current good relations with
the Bush Administration contributed to resolving
a crisis in Iberia's unique arrangement.
According to Enrique Donaire, Iberia's Director
General, the airline's Miami operation was very
nearly shut down in the aftermath of the terrorist
attacks on New York and Washington on Sept 11, 2001
because new security procedures were causing too
great a delay in passenger transit. But an intervention
by Florida Governor Jeb Bush, the president's brother,
facilitated negotiations to streamline the procedures.
Airline sector analysts point to a third reason
for Iberia's success: along with British Airways,
its partner (with 9 percent of the equity), it is
one of the most efficiently run airlines in Europe.
Last year it was chosen as the most punctual airline
in Europe. That was after Iberia President Xabier
de Irala linked staff bonuses to the airline's punctuality.
Today Iberia Group (including its Mediterranean
subsidiary Air Nostrum) flies to 97 destinations
in 40 countries. Via code-sharing arrangements with
other airlines (American Airlines, Aerlingus, Finnair,
among others) it offers flights to another 60 destinations
in 25 countries.
One of the world's most prestigious companies in
aircraft maintenance, the airline also carries out
maintenance work for 50 other airlines. And another
claim to fame is that it is one of the founding
partners of Amadeus, the world's largest reservation
system.
In 2003 Iberia carried 30 million passengers on
350,000 flights worldwide. The number of business
class passengers on long haul flights increased
by 2.7 percent over the previous year to 400,000.
The airline is forecasting an overall increase for
this year partly as a result of an expansion project
of Madrid's Barajas International Airport, its home
base.
By mid-year work is expected to be completed on
two big new terminals and two new runways at Barajas.
The new terminals will increase the airport's passenger
capacity (36 million in 2003) by 75 percent, and
Iberia is well positioned to make full use of that
increase.
Meanwhile, the Spanish flagship is going through
a major renovation of its own. It is gradually phasing
out its 747s, with the last one scheduled to go
out of service by the end of 2005. The old Jumbo
fleet is being replaced by Airbus A340 aircraft.
As many as 31 new Airbus 340s will be refitted
with what is in effect a super business class section
to replace the current first class section "with
the emphasis on comfort," as Jaime Perez Guerra
puts it.
Seats in the new class will recline to a completely
flat position to form single beds 1.90 centimeters
long and 66 centimeters wide. Additional privacy
will be ensured by enclosing the seat/bed space
within a rigid structure, isolating it from its
neighbors.
The airline says each passenger will have an individual
coat hanger and space for coats, a seat pocket for
personal items, a bag for magazines, a reading light
with adjustable intensity -- and another bag for
holding his or her shoes.
Iberia's new seating class will also be equipped
with up-to-the-minute entertainment and communications
systems, including satellite telephone service and
facilities for sending and receiving both e-mail
and short cellphone messages.
This month Iberia will reveal a new, innovative
fare structure designed to make it more competitive
in the lower fare market. The new fares will do
away with the obligation to stay over a week-end
to benefit from lower tariffs. In addition, the
ticket price will be linked to a choice of options
ranging from all-the-frills to no frills. "The
key is flexibility," says Perez Guerra.
The airline is also planning increases in its long
haul flights to both the United States and Latin
America. By 2005 an additional wide-bodied aircraft
will have been added to the Madrid-Miami route for
a total of three flights a day. Madrid-New York
flights are scheduled to go from 10 flights a week
to 14 flights, and eventually to three flights per
day by 2006. Flights to Mexico City will also jump
from 10 to 12 per week.
Actually, what Iberia officials emphasize in conversations
is not the bottom line or the record number of passengers
carried, but the airline's corporate commitment
to social causes, and particularly to the integration
of the handicapped in the workplace. A recent survey
by the Enterprise and Society Foundation ranked
Iberia among the three Spanish companies with the
best reputations for social activism, and first
in employee cooperation programs.
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