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Willie Walsh on the future direction for International Airlines Group

Updated Thursday, 18th October 2012

The value in keeping British Airways and Iberian brand identities; working closer with American; and plans for future acquisitions.

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In a discussion with Thomas Lawton, Willie Walsh, CEO of International Airlines Group explores the company's present position and possible future. Amongst the topics covered:

  • why Iberian and British Airways have kept their own identities within the group
  • how London's position has helped BA remain profitable
  • will IAG attempt to purchase American Airlines after the US carrier emerges from bankruptcy
  • what IAG might look like in five years

Video

Thomas Lawton and Willie Walsh were in conversation following the taping of an edition of The Bottom Line.

Text

 

Professor Thomas Lawton:  Willie Walsh, welcome, thank you for joining us today.  You joined International Airlines Group in 2011, having been Chief Executive of British Airways since 2005, and I just wanted to ask you some questions really about how it differs, for example, firstly, between leading a transnational holding company, how that is different from running a British airline?

Willie Walsh:  It’s very different, but the first thing I would say is I don’t like to refer to International Airlines Group as a holding company, because I think a holding company always sounds very passive, and at IAG we like to think we’re actually quite active and dynamic in terms of managing both of the airlines.  But for me it’s meant withdrawing quite a lot from the day-to-day running of the airline, so I don’t get involved in a lot of the operational issues that would have taken up quite a bit of my time when I was the CEO of British Airways.

The good thing about that actually is it gives me a lot of time to think, and IAG is about the future: it is a strategic development and we’re talking about trying to shape the future of the airline industry.  So not being distracted by day-to-day operational issues does give us quite a bit of time to focus on that key strategic objective.

Professor Thomas Lawton:  Okay, thank you.  Iberia continues to bleed money, whilst BA is keeping the merger alive. What, besides cost cutting, what can you and IAG do to remedy that situation?

Willie Walsh:  I think Iberia reflects the challenges in Spain.  It’s actually a pretty good barometer of the general economic environment in Spain which is quite weak, and probably reflects the challenges in the Eurozone.  Iberia is much more exposed to Eurozone business than British Airways would.  I think the other important point about British Airways is although the UK economic figures are quite weak, London remains quite strong, and given that BA centre of gravity if you like is the London market it continues to perform well.  But going forward we will be looking at everything that we can possibly do to address both the short and long term challenges that we see at Iberia.  And cost reduction, efficiency is clearly one of the targets that we have there.

Professor Thomas Lawton:  And one of the issues perhaps also is the increased integration of service between BA and Iberia.  I mean there are still some differences I think in terms of for example short haul service offerings between the two airlines.  Is that something that you intend to remedy over the next few months or years?

Willie Walsh:  No, not at all.  It was one of the reasons why at the very beginning of IAG we made clear that we were retaining two very distinct brands: British Airways and Iberia.  The brands are different; the service proposition is different; the service culture is different; and we weren’t trying to actually merge the two to create a single brand or a single customer proposition, because we recognised that there was actually great value in both of the brands but very different value.  And we’ve created a structure that allows us to retain these different brands, different services propositions within an overall group environment.  And we believe that that’s the right way forward, the right thing for us to do to better serve the customers of the particular airline in the way that they want to be served.

So where we overlap with services, and we do this with a lot of airlines where we would co-chair with other airlines, we need to be clearer to our customers, this is a communications challenge I think.  We need to be clearer to our customers that the service will be different, and that we will not be seeking to try and offer a single type of service right across the network.

Professor Thomas Lawton:  I've been speaking with executives at American Airlines this year, and I’m just wondering, again moving forward obviously American has to firstly get out of Chapter 11 bankruptcy, do you see a partnership with them as being a key part of IAG moving forward?  Do you see American playing a more integral role perhaps with BA and Iberia?

Willie Walsh:  Well we’ve got a very important joint business with American, which has been in place now for about eighteen months, a little over eighteen months; in fact I think it’s coming up on two years, time flies, which is very important to us.  We’ve made clear that if the company, the management at American welcomed an investment by IAG, and if we felt that there was strategic value to us investing, then we certainly would look to investing in American.  We’re not looking to buy American or to merge with American, simply because the restrictions that exist, ownership and control restrictions wouldn’t allow us to do that.  And I don’t think those restrictions will be removed in the next few years; I think it’s going to take a bit of time before that happens.  But we’ve got a close relationship, we look to fully exploit that, and see if there’s opportunities for us to work closely, more closely with them.

Professor Thomas Lawton:  Do you have any residual interest in your old company Aer Lingus if the pension problem was sorted and if the Government sells its share?

Willie Walsh:  No, there’s clearly some value in Aer Lingus but not sufficient value for us to look at either investing in a minority sense or looking to acquire the company.  So we’re watching with interest what happens at Aer Lingus, but we’re not going to be active.

Professor Thomas Lawton:  Final question, if I may, what do you think IAG will look like five years from now?  Will you continue to grow through merger and acquisition for example?

Willie Walsh:  I’d be very surprised if in five years’ time we have not acquired another airline as part of the group.  I think there will be opportunities for us in that timeframe.  We’re very clear though that we will only look to acquire or merge with airlines that will add significant value to the group.  There are lots of airlines that would be available to us today; in fact we get regular contact from airlines all around the world asking us to invest in them or asking to join the group.  But we need to see real value.  It’s not just about being bigger; it’s about being better; it’s about generating superior returns for our shareholders.  And that’s something that the airline industry has got to face up to.  You know, we’re an industry that has not delivered the sort of returns that would be expected of any other industry, so we’re clear in terms of the opportunities, and I would expect there to be opportunities for us in the next five years.

Professor Thomas Lawton:  And any insight into who the next airline might be?

Willie Walsh:  No, can’t say that, but the opportunities exist today.  We do look very carefully when we see airlines that come into play to better understand if they can add value to the group.  But I think the industry is going to see a lot of consolidation in the next five years, and we’re well positioned to participate in that, and we would expect to play a leading role.

Professor Thomas Lawton:  Willie Walsh, thank you for your time today.

Willie Walsh:  Thank you.

 

 

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