What issues face the airline industry, a young but globally significant business affected by rapidly changing external factors?
Antonio Vázquez, Chairman of Iberia and IAG, spoke at LSE about the challenges facing airlines, his company’s business decisions (including Iberia’s merger with British Airways) and prospects for the future.
He recounted how air traffic deregulation in the US at the end of the 70s led to increased competition and the emergence of low cost airlines, while the common market enabled deregulation in Europe at the end of the 90s. In the 20 years since, the internet has completely changed the relationship between the airline and the customer.
The economy and fuel prices are the two main factors for the industry. Any change in GDP tends to be doubly reflected in airline usage, while fuel today costs 50% more than in February 2010.
The economic crisis therefore made 2009 one of the least profitable years, but 2010 was the best year ever, with low fuel prices, recovering demand and a growing cargo business. The industry worldwide made a $15.9 billion profit, although Mr Vázquez noted that this is still only a 3% margin.
He saw competitiveness as the biggest problem the industry has in Europe, and said that alliances are vital – whether with other airlines or with high speed rail links. Iberia’s merger with BA had gone smoothly because the two companies have not integrated their operations and because ‘It has not been a honeymoon – we have been living together for ten years’.
Environmental concerns are leading to changing governmental regulation and internal research. Mr Vázquez argued that the industry’s interest regarding carbon emissions is in line with the ecologists’ – the less fuel burned, the more money saved. Investment in more efficient and cleaner engines, lighter aircraft and biofuel programmes mean that air travel should be carbon-neutral by 2050. Open airspace over Europe so that planes can fly more directly to their destinations would also make a big difference.
The event was held by LSE Enterprise in collaboration with the Spanish Chamber of Commerce as part of the LSE Leadership and Strategy in Spain series.