Usame & Yasen
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Case Study
Iberia's merged with Britis Airways under IAG providing financial stability but they lost strategic
control they once had. The plan was driven to achieve synergies, reduce the general cost and
improve competitiveness in the market. The strugles they faced came from economic downturs,
competition from low cost airlines and internal conflicts. The plan was to cut costs and modernize
operations, labor disputes and fleet renewal delays slowed the progress. The way out was adressing
the challenges trying to balance the interest of various stakeholders, emoleyees and unions, while
maintaining focus on long term financial stability.
1. Analyse the reasons behind the merger of the airlines Iberia and British Airways and the
type of merger involved. Identify the main problems Iberia faces as a result of its
membership of the IAG Group
Competitive Positioning: Both airlines wanted to strengthen their global standing to be in step with
big players (Air France-KLM, Lufthansa acquisitions – already consolidated trough merges) this merge
positioned IAG as the third largest airline group in europe.
Cost Synergies: By sharing reasources, steamlined operations and optimizing flight schedueles the
merge aimed to acvhiece $400 milion by 2015
Corresponding Routes: This merge allowed them to combine their networks and explan their global
reach. Iberia dominated Europe-Latin America rutes, Britis Airways was strong in Europe-North
America traffic.
Financial Stability: Better financing conditions and improved negotiating power for aircraft, fuel, and
financing.
Corporate Governance: this provided experienced ledearship to drive the global strategy of the
combined group.
Type of Merger:
Horizontal: involving two companies from the same industry, the goal was to expand market share
and reduce cost trough synergy.
Main Problems Iberia Faces as a Result of IAG Membership:
Lost of Autonomy: Iberia needed to aligh its operations with IAG overall strategy. Britis Airways had
stronger influence due to its higher shareholding (56%)
Labor Conflicts: coflicts with unions over job cuts, wage reductions, changes to working conditions -
this resultet in strikes and operational distruptions. (due to Iberia Express low cost structure)
Reduced Market Share: Iberia lost its posiition as Spain's leading airlinge to competitors like rynair
and Vuling.
Route Reductions: IAG prioritized cost-cutting, leading to route cancellations that weakened Iberia's
hub in matrid
2. Identify and analyse the possible reasons for Iberia posting losses and its difficulties in
recovering.
High operationg costs: The initial exclusivity and high operating costs of the company during the
world crisis.
Increased Competition: The low-priced trending airlines such as Ryanair,Wizair becoming much more
preferable among the people due to the skyrocketing of the needs of traveling and exploring
affordable during the financial crisis.
Rising Airport Chargers: The many taxes implied by the Spanish government and the EU due to the
high fuel consumption and cost,the carbon emissions regulations which reflected the customers by
even more heavy prices,losing the even more of their clients’ trust
High Speed Trains: The debut of the high-speed trains in Spain made the inner,domestic flights
irrelevant due to the fact that trains are much more comfortable and affordable than going trough
airports and high expenses
The difficulties in recovery were:
Rigid Cost Structure: The struggle to adapt to the market’s changes due to the high fixed costs and
keeping up with them.
Lack of competitive strategy: The lack of marketing strategy and bad reputation of the airline.
The under maintained and aging fleet: of planes and non-profitable routes.
Dependance on connections: Its’ dependence on connecting flights for long distance travels left it in
a bad position against the direct,low cost providers
3. Based on the answer to the preceding question, analyse Iberia’s restructuring strategy and the
role you think the creation of the IAG Group has played.
Iberia’s 2012-2015 Transformation Plan:
Cost Reduction: Iberia focused on reducing operational costs (workforce cuts of 15% - 3.141 jobs)
sallary reductions.
Route Optimization: Iberia downsized its fleet by 25 planes to improfe efficiency, canceled
unprofitable roudes. Launched Iberia Epress for short-haul competition.
Fleet Modernization: Iberia invested in more fuel-efficient aircraft, rereshed its image, upgraded long
haul srvices and invested in digital improvements.
Revenue Diversification: Focused on baggage fees, in-flight services, in flight entertainment and VIP
lounges to attract more passengers.
Role of IAG:
Cost-Cutting Focus: IAG pressured Iberia into cost efficency and operational efficiency, over network
expansioon.
Financial Support: IAG's stronger financial position allower Iberaia to fund its restucturing plan.
4. Identify the main stakeholders and their objectives in Iberia’s restructuring process, assessing
each one’s importance. Discuss the impact that industrial conflict has had on Iberia’s situation.
Key Stakeholders & Their Objectives:
IAG Management (Willie Walsh, Luis Gallego): Obj: Focused on cost-cutting and profitability, driving
aggressive restructuring. Importance: High, management decisions directly impact the airline's
performance.
Iberia Employees & Unions (SEPLA, UGT, CCOO): obj: Job security, fair wages, and favorable working
contionions. Importance: High, labor disputes can disrupt operations and damage the airlines
reputation
Shareholders (including IAG): Obj: Maximize returns on investment and ensure long-term financial
stability. Importance: High, as shareholders provide the capital needed for restructuring.
Customers & Business Travelers: Obj: Affordable fares, reliable service, and a positive travel
experience. Importance: High, as customer loyalty is critical for revenue generation.
Competitors (Ryanair, LATAM, Air Europa): Benefited from Iberia’s struggles, capturing market share.
Impact of Industrial Conflict:
Operational Disruptions: Strikes and labor disputes led to flight cancellations and delays, reducing
revenue and customer satisfaction.
Financial Losses: Prolonged conflicts increased costs (e.g., compensation for canceled flights) and
delayed restructuring efforts.
Reputation Damage: Negative publicity from labor disputes harmed Iberia’s brand and deterred
customers.
Employee Morale: Ongoing conflicts lowered employee morale, affecting productivity and service
quality.
Impact of Industrial Conflict:
Financial Losses: Pilot strikes cost Iberia approximately €50 million.
Operational Disruptions: Canceled flights and service delays harmed Iberia’s reputation.
Delayed Restructuring: Labor disputes slowed down Iberia’s transformation efforts.
