October 28, 2020

Brexit, the environmental challenge and a reconversion of ‘low cost’, the present challenges of IAG | Companies


The new IAG chief executive, Luis Gallego, will take over at the end of March Willie Walsh, one of the world figures in the air sector, in the middle of a perfect storm for business. The concentration process is incessant in a context of economic, political and commercial uncertainty, which adds to a very changing upward demand in demands and customs.

So far the president of Iberia has plenty of experience in market research and has succeeded in adapting the offer; has also shown temperance before the critical situations in Iberia.

The holding company which includes British Airways, Iberia, Vueling, Aer Lingus and Level, has again bet on a figure of industrial profile as CEO. And, among the emergencies is a deep fleet renewal at a time when the world’s largest aircraft manufacturer, Boeing, it is going through a serious credibility crisis due to the recent air accidents of the 737 MAX star model. Galician part of having a long relationship with Airbus, the other leading supplier in the aviation industry.

IAG will reduce brands and seek greater commercial and maintenance synergies

The constant modernization of the square is essential in view of the need to reduce CO2 emissions and fuel consumption. The cost of the latter does not cease to add uncertainty in full escalation of tension between the US and Iran. It also weighs the current of demonization of air transport for its contribution to global warming (it is responsible for 2% of global CO2 emissions) and the wave of implantation of edatas in Europe.

IAG has, in parallel, a process of Template renewal and rationalization of maintenance processes and services, where Luis Gallego is recognized as a specialist. The action as a group has as its first objective the search for synergies, and this involves the creation of unique fleet maintenance, administration or commercial services platforms, such as the customer loyalty program or the sale and electronic invoicing. And all, leaving spaces of freedom of management to each of the brands.

Less tested is Galician in the deal with investors, the demands of the stock and financial market. IAG is still a financing structure for its airlines with notable success on the stock market. The demand for a high return on investments and the dividend will now be among your first concerns, so you should clearly rely on the team.

Battle in the Atlantic

IAG is immersed in a commercial contest, from its hub Heathrow, Barajas and Dublin, for the Atlantic traffic. The pressure of firms like Norwegian, and formerly Eurowings, forced the development of the low cost long radius Level at strategic points like Barcelona or Paris. What will be of this strategy?

Luis Gallego faces the new challenge of dealing with investors and the stock market

Gallego has been focusing on the plans of the youngest brand in the group for months, the aforementioned Level, of which he is president and in which he has led a man of his entire trust as CEO, Fernando Candela, formerly CEO of Iberia Express. Once contained the offensive of Norwegian, it is expected that Level can raise battle with two giants, Ryanair and Easyjet, for point-to-point traffic.

Sources of all solvency affirm that this subject for Level will be undertaken in close collaboration with the Catalan Vueling. In fact, IAG will seek the rationalization of brands in Spain and the options include the integration of the aforementioned Vueling and Level.

The new CEO of IAG also will follow closely the purchase of Air Europa. An operation, which seeks the position of the EU Competition Commission, designed to preserve Iberia’s leadership in the connections between Europe and South America.

Once the Hidalgo family airline is taken, The plan involves focusing on tourist traffic, while Iberia will focus on the business segment.

A Vueling plane lands at the Barcelona-El Prat airport.


A Vueling plane lands at the Barcelona-El Prat airport.

In British Airways, meanwhile, Gallego will be attentive to the aforementioned fleet modernization process and the consolidation of a broken social peace in 2019 after decades without labor conflict. The renewal of equipment to reduce costs was already the recipe applied by the executive in an Iberia that was bleeding in the not so distant 2013, with the loss of a million daily. But in addition to streamlining costs, the IAG flagship airline faces an imminent Brexit, the need to shore up its competitive advantages in traffic between the United Kingdom and the United States, and the urgency of recovering its premium airline image.

“British would fill a plane between London and New York putting the tickets at 5,000 euros. But that customer, willing to pay, is the most demanding, ”explains an intimate connoisseur of the company.

Brexit and more

Adapt the corporate structure of IAG to the EU requirements regarding ownership and control, before Brexit, as well as preserve certificates of operations of the different airlines, it is the great bureaucratic task on the table.

IAG, Gallego reiterates again and again, is based and registered in Spain, is run by non-British executives in the first line of action, is listed in Madrid and has historical flight permits in countries such as Ireland or Spain. But also, you must also have more than 50% of the capital in community hands. A rule, many years ago, on which large air conglomerates try to promote a reform in view of the difficulties that the listed companies have to meet.

The formation of alliances under the figure of business agreements is also key for IAG on the world map of the air sector. The expansion of the American Delta, with landing on Latam and control of Aeromexico, or the continuous movements of Air France-KLM, force IAG to insist on the search for marriages that help to extend their networks reducing the investment effort.

And if the short and medium radio is a challenge, in conflict with the large European low cost, it is also open new business routes to Africa and, especially, to the East and Asia Pacific. The rivals to beat are well known firms, such as Lufthansa and Air France, but also the sophisticated airlines of the Middle East and Asia. Whoever is capable of establishing ententes on either side of the planet will win.

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