IBERIACASESTUDY

Iberia was founded on June 28, 1927 by Horacio Echeberrieta. It was not only Spains first airline,
butalsothefirsttoflybetweenEuropeandSouthAmerica(asof1946),thefirsttoestablishawalk
on air shuttle service (between Madrid and Barcelona), and the first in Europe to offer an
internationalfrequentflyerscustomerloyaltyprogramme(IberiaPlus).
In2001,onApril3,Iberiasprivatizationprocesswascompleted,whenitsshareswerelistedforthe
first time on the stock exchange. The following year Iberia was included in the selective Ibex35
stock market index. Today Iberia is an international transport group operating in around 100
airports.

IBERIASPOSITIONSHORTLY AFTER PRIVATISATION (2002)

AlthoughSpainisnotamajorairlinehub,itisarapidlygrowingmarket:
FASTGROWINGSPANISHMARKET

Iberiacasestudy 1
Iberia revenues are split roughly 1/3, 1/3, 1/3 across three market segments: Domestic, European
andLonghaul/Intercontinental:
SpainhasmoredomesticpassengersthananyotherEuropeancountry.Itslargesizeand
relativelyundevelopedroadandrailinfrastructureoutweightheimpactofbeingsmallerin
populationthansomeothercountries.Thecasemajorityofcustomersflypointtopoint(i.e.,
notthroughahubsuchasMadrid).Thedomesticmarkethasrelativelyfewcompetitorson
mostroutes,butisforecasttodeclineduetoimprovementsinmotorwayandraillinks.Iberia
enjoysmarketsharesof5060%,and85%inthepremiumsegment.Ithasgoodrelationships
withthelocalairportsandrelatedlocalgovernmentandthisallowsitsignificantinfluenceover
departuretimes,gatesandplansforairportexpansionandmodification.

TheEuropeanmarketisalsolargeinSpain.GermanySpainhasthelargestnumberofflightsof
anytwoEuropeancountrieswithUKSpainsecond.Themajorityofpassengersflyonpointto
pointroutes,althoughslightlylesssothanforthedomesticmarket.Europeanflightsface
increasingcompetitionfromLCCs(lowcastcarriers)suchasRyanair,particularlytoandfrom
touristdestinations.SpainistiedwithItalyasthesecondmostpenetratedLCCmarketafterthe
UK.However,todatetheLCCshavetakenshareprimarilyfromCharterairlines.
Competitivenessvariesalotbyroutebutingeneral,hightrafficroutesattractnew
competitorsovertime.Therearenomajorregulatorybarriersstoppinganewairlinestartingup
althoughtheycanfinditdifficulttofindslotsatverybusyairportssuchasHeathrowor
Madrid.

LonghaulmarketshavebeenhitbytherecenttwintowersbombinginNewYork,butare
expectedtorecover.Iberiaservestheneedsofdomestictravelersandhasthehighestmarket
share(forEuropeanairlines)inroutestoLatinAmerica.Itsshareoftouristandbusiness
customersareaboutequal(thelatterhavinggrownsignificantlyinrecentyears).Someairlines
arecontracting,suchasBA.SeveraloftheLatinAmericanairlineshaveexperiencedsevere
problemsrelatedtothemeltdownofsomeLatinAmericaneconomiesinrecentyears.

ThemajorityofpassengersflyonconnectingflightstoMadridorBarcelonabeforeflyingto
theirfinaldestinationalthoughasignificantnumberflypointtopoint(i.e.,directfromMadrid
andBarcelona).OnroutesfromSpaintoLatinAmerican,asonroutestomanyotherinter
continentalmarketssuchastheUS,governmentregulationmeansthatIberiaistheonly
Europeanairlineallowedtofly.

Examplesofpricesfordifferentroutesinthesethreedifferentmarketsareattachedasanappendix.

Iberiacasestudy 2
MARKETSHAREEVOLUTIONEUROPELATINAMERICA

16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
1998 1999 2000 2001 2002
Iberi a
More destinations
Higher numbers of non-stop flights
Higher daily frequency
Air France
KLM
British Airways
Retrenching to business and point to
point customers only
Lufthansa
Source: Iberia.com

Iberiasoperationalperformanceismixed.Costsarehighrelativetothelowcostcarriers.However,
unitcostsarelowrelativetoothernationalcarriers.

IBERIAUNITCOSTSBELOWTRADITIONALAIRLINES

600 800 1.000 1.200 1.400

14
13
12
11
10
9
8
7
6
5
1.600 1.800 2.000
SAS
Lufthansa
Austri an Ai rl i nes
Bri ti sh Ai rways
KLM
Ai r France
Iberi a
EasyJet
Ryan Ai r
Low Cost Carri ers
Costs
(Euro
Cents/
ASK**)
Average Stage Length (Kms)
Date for period January December 2002, except Ryanair and Easyjet fiscal year 2002.
** Costs are Operating costs less 33% of Operating Leases. ASK is the number of seats
times distance flown (a unit of capacity) Source: AEA, Iberia.com

Iberiacasestudy 3

Morespecifically(ontheparametersidentifiedinthenoteontheairlinebusiness):

NETWORK.IberiahastwomajorhubsMadrid(whichisthebiggestforinter
continentalflights)andBarcelona.ItisparticularlystronginMadrid(inexcessof50%
marketshare),whichisrelativelybusinessorientatedandtheprimehubforinter
continentalflights.Bothhubshaveexperiencedhighgrowthandareexpectedto
continuetoshowthis.However,LCCsarebuildingshareatBarcelonainparticular,and
otherSpanishairportssuchasMalagaandAlicante.

IberiaoperatesmanyflightsfromSpaintoEuropeanlocationsandtomajorinter
continentalhubsparticularlyLatinAmericawhereithasahighshareoftotalflights.It
hasalsobeenincreasingtheproportionofbusinesscustomersontheseroutes.

POSITIONING/BRANDING.IberiaisthepremiumairlineinSpain.Recentinitiatives
includestronggrowthofitsEuropeannetwork,launchingIberia.comandelectronic
ticketing,eprocurementandinitialreductioninstaffcosts.Ithasatraditionalmodel,
includingbranding,frequentflyerprograms(aspartoftheOneWorldalliance),business
lounges,onboardcatering,traditionalseating(spacedout,limitedreclineinbusiness),a
relativelyundifferentiatedservicebetweenbusinessandtouristclasscustomers,heavy
useoftravelagentsandrelativelyhighcommissions(10%)

Aircraftutilisationisparticularlypoorprimarilyduetonetworkplanningandslow
turnarounds.

ALLLIANCES.IberiaisamemberoftheOneWorldairlinealliancealongwithAmerican
Airlines,BritishAirways,AerLingus,LANChile,CathayPacific,FinnairandQantas.
Togethertheyflytoalmost600destinationsin135countries.Onaverage,everyfive
secondsthereisatakeofforlandingbyanaircraftofanairlineinthealliance.

AIRCRAFTMIX.ThefleetisamixofBoeingandAirbusaircraft.

OUTSOURCING.Iberiahasnotoutsourcedmanyofitsactivities

SYSTEMDEVELOPMENT.Iberiadoesnothaveanyothermajorbusinesses

Iberiaisarelativelyprofitableairlineandhasbeenforthepastfewyears.

Sources:IberiaWebsite,Press.

Iberiacasestudy 4
Iberiacasestudy 5

LOWESTPRICESOFIBERIAFLIGHTSFROMMADRID
OutboundflightsMonday19June,2006bookedonemonthinadvance

Destination
Distance
(Km)
Overnight
stay(Euros)
4daystay
(Euros) Notes
Granada(Spain) 310 262 104
Murcia(Spain) 300 452 104
Geneva 1200 55 70 350Euroforadayreturn
London 1650 66 168
NewYork 5800 1820 1121 506EuroforFridayor
Saturdaydeparture
RiodeJaniero 7000 3753 1149
Guatemala 7500 3048 4258

LOWESTPRICESOFIBERIAFLIGHTSFROMBARCELONA
OutboundflightsMonday19June,2006bookedonemonthinadvance

Destination
Distance
(Km)
Overnight
stay(Euros)
4daystay
(Euros) Notes
Granada(Spain) 620 298 150
Murcia(Spain) 420 388 104 ViaMadrid
Geneva 750 339 179
London 1600 171 235
NewYork 5800+ 1820 1200 ViaMadrid
RiodeJaniero 7000+ 3753 1228 ViaMadrid
Guatemala 7500+ 3048 4253 ViaMadrid