Europe's airlines must focus on low-cost battle-IAG CEO

Tue Sep 17, 2013 11:30am EDT
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By Rhys Jones

LONDON (Reuters) - European airlines will have to cut costs at existing short-haul businesses to compete with budget airlines or struggle to stay aloft, IAG boss Willie Walsh said.

So-called legacy carriers such as IAG, Lufthansa (LHAG.DE: Quote) and Air France-KLM (AIRF.PA: Quote) are cutting jobs, renegotiating staff contracts and dropping uncompetitive routes to get costs on a par with budget carriers, such as market leaders Ryanair (RYA.I: Quote) and easyJet (EZJ.L: Quote).

They are also replacing older, fuel-thirsty planes and streamlining back-office operations.

"We're focused on reducing out cost base and making our short-haul business more efficient ... those that don't will struggle to survive," Walsh said on the sidelines of the World Low Cost Airlines Congress in London on Tuesday.

"We have Vueling and I think every airline should aim to have an independent low cost arm."

In current cut-throat market conditions, even some of the budget airlines are finding it tough. Ryanair earlier this month warned it could its miss annual profit target due to lower demand across Europe. Fast-growing budget carrier Norwegian Air (NWC.OL: Quote) also said revenue per passenger fell in August, partly due to competition.

British Airways and Iberia parent IAG bought Spanish discount carrier Vueling for $180 million in April to help stem losses in Spain, where Iberia's short-haul business has been hit by competition from low-cost airlines and high-speed trains.

British Airways previously tried to run a low-cost airline, Go, alongside its mainline carrier but sold it to private equity group 3i in 2001 after it under-performed.   Continued...

Passengers check-in at an Air France counter in Nice International airport in Nice July 31, 2013. REUTERS/Eric Gaillard