When flag carriers flew the world like proud extensions of government foreign policy, the merger of British Airways and its Spanish counterpart Iberia would have been unthinkable. But the advent of Ryanair, easyJet and other low-cost ingenues, followed by the dent in demand caused by 9/11, exposed them to the unforgiving economics of modern aviation. The industry has lost $25bn (£16bn) since 2001, in a decade littered with redundancies, financial restructurings and bankruptcies.
The formation of International Airlines Group (IAG) through the merger of BA and Iberia in 2011 was supposed to muster strength from an imperilled business model. The group would earn more revenue for less cost, while pooling expensive overheads such as buying aircraft. Speaking as BA chief executive at the time, Willie Walsh, now chief executive of IAG, said BA would benefit from adding Latin America to its lucrative transatlantic routes. “We are very pleased to have the combined network of BA and Iberia,” he added.
It is now clear that one half of IAG entered this modern marriage still rooted in an earlier era. According to IAG’s nine-month results, BA made an operating profit of €286m (£229m), bolstered by its UK-US routes and the accumulated benefit of years of cost-cutting, including a bitter industrial dispute with cabin crew in 2010. Iberia, on the other hand, nearly wiped out BA’s gains with an operating loss of €262m.