Organization People and Performance in Iberia Airlines - Research Paper Example

Organization People and Performance in Iberia Airlines Introduction Iberia Airlines (referred to as Iberia Lineas de Espana S.A.), is a Spain-based airline that was founded in the year 1927. It is a subsidiary company of International Consolidated Airlines Group (IAG), SA, one of the world’s largest global airlines- offering services to more than five hundred destinations in 135 countries. This aviation company, together with its numerous subsidiaries, avails air transport of both cargo and passengers on international routes, not only between Europe and Spain, but also between Europe and Latin America (Datamonitor 2010, p.2). These three markets, Spain, America and Europe, remain to be the chief market within which Iberia does operate. In addition, Iberia Airlines is also dedicated to various activities related to the fundamental airline business, comprising of inspections and repairs of airframes, maintenance activities of aircrafts, inspections and repairs of aircraft components and engines, and undertaking various airport handling services such as baggage handling, servicing aircraft. Other services that Iberia provide include such as information technology (IT) and telecommunications services and technical assistance services including information technology systems development activities, IT systems and data processing centre maintenance , customer (user) care and support and the management of the purchase of information technology products and services (Datamonitor 2010, p.3). Career path and reward strategies The firm adopts effective HRM strategies that call for first class flight rewards to best employees. In so doing, the productivity of employees is maximized. Thus, employees are rewarded in respect to their performance. Additionally, the firm employs structural training system aimed at enhancing quality of employees as well as enabling them to grow in their careers. The training strengthens the abilities and expertise of employees that enables them to handle more responsibilities while paving humble way for promotion resulting to career growth (Asquith 2012, p.1). Communication plays a significant role in determining bonus and stock option as it calls for employees to be engaged in determining these issues especially when the pay rates are low when the firm is going through financial crisis. The aligned recruitment process to the cultural and strategic requirements of the company together with effective training and development initiatives makes the firm to enhance career growth of its employees. The reward system employed is formal since appraisal and promotion process goes through multiple channels thus making employees to be loyal productive and highly motivated. The rewards system in Iberia airline is based on performance and this motivates employees to perform better while fostering innovations in the firm. Iberia’s Workforce On the aspect of workforce statistics, Iberia has a capacity of over 25,000 employees and flies to seventy nine destinations within thirty nine countries across the globe. Moreover, and on the basis of core-sharing arrangements with other airline carriers, Iberia also has its airlines plying to other ninety five destinations in thirty five countries. The loyalty effect is another key concern of the firm even as it aims at dealing with the issues affecting productivity of employees when difficult decisions such as retrenchment is being undertaken to avoid conflict with unions. The Spanish air freight sector has been defined to have been made up of revenues resulting from air freight transportation, with the units of volumes being measured in terms of freight to kilometers. These air freight volumes are a summation of both international and domestic freight based on the country of origin (Bernard 1995, p.3). Iberia’s Revenue Trend The total revenue of this Spanish international airline by the year 2009 totaled to USD 16.6 billion, and this represented a compound yearly growth rate of 2.6 per cent for the period running from 2005 to 2009. As a matter of fact, the volumes of the industry did increase with a compound annual growth rate of 0.5% in the same period, to clock a total of over ninety million passengers in 2009. Additionally, since then, it has been forecast that the industry’s performance is anticipated to increase by 4.6% for a period of five years running from 2009 to 2014. With this forecast, it is believed that the value of the industry will, by 2014, have reached the USD 20.7 billion mark (World Airlines News 2012, p.1). This belief has been backed up by the move by Iberia to enter into a merger with British Airways, which took place in the beginning of 2011. Nevertheless, and irrespective of the above mentioned prospects as well as the merger, the present business situation for the company has not been that pleasing. For purposes of documentation, it has been reported that Iberia has been unprofitable in all its markets. This has caused the company to operate on a loss this year as compared to previous financial years. As thus, the management has been compelled to take necessary decision making measures so as to save the returns of the company. This therefore calls for a deep-seated analysis of the various factors that ought to be taken into consideration, including political, economic, social, technological, environmental and logical factors (Reuter 2012, p.1). Spain remains to be a perfect example of a country that has transited from the monarchy form of leadership to dictatorship and later to democratic leadership. As a matter of factor, this is one of the countries which have been a witness of both liberal and conservative regimes, with the policies that have been framed under each of the regimes having played a very central role in upholding continuity of reforms in both social and economic realms. Notwithstanding the above mentioned, differences in the arenas of defenses, immigration and foreign policies have been presented. Notably, the extent of the same policies has all through been considerably slowed down by reformist policies (Stephens 2012, p.1). The system of governance in Spain is considerably democratic and this has so been facilitated by the smooth transition from the different regimes. Markedly, Iberia has been having a good relationship with the local government. Irrespective of the changes in the in-rule regime, successive governments have seen to it that continuity is upheld as concerns economic policies. This has in turn made certain the prolongation of the economic policies geared towards fiscal consolidation. In so doing, Iberia and its customers and the Spaniards at large, have been presented with the opportunity to actively participate not only in the selection of their government, but also enjoy freedom of expression, a free media and the freedom of association. This points-out the efficiency and effectiveness of the republican constitution (AP 2012, p.1). Following the membership of Spain to the European Union (EU), Iberia has also been presented with an opportunity to smoothly integrate itself with other member of the union. This has facilitated the offering of airline services to other EU members. As thus, the company has stood to benefit as a result of the enormous amount of inflow economically from the EU nations. Partido Socialista Obrero Espanol (PSOE) incumbent government has, in political terms, become closer to the European countries, and more especially Germany and France. Such a strategy is expected to be of a significant benefit to the government as well as Iberia as the EU member nations become a development partner with Spain. As already is the case, Spain has been in a position to realize remarkable progress under the influence of the European Union agricultural and regional subsidies. Liberalization has also seen the blooming of Iberia’s business operation. This has been the case as a result of the Spain been an EU member since 1986 (Datamonitor 2010, p.5). Economic Hiccups in the Eurozone and the Impacts it Had on Iberia’s Performace The economic ups and downs in the Eurozone have measurably affected the operation of Iberia Airlines. Reportedly, the Spanish economy- since the latter part of 2007- has been on a downturn. The following year, that is 2008, Spanish economic growth recorded a 1.1% decline. The speculative price in real estate market as well as boom in property came to a halt. As a result of both global financial turbulence and the United States sub-prime crisis, there has been exacerbation on the economy of Spain due to its dependence on the real estate sector. With the rising inflation and the weakened domestic demand, Spanish economic crisis has deepened thus submerging Iberia’s operations and profitability (Datamonitor 2010, p.19). Following its membership to EU and its subsequent integration with the union, the Spanish government has devoted itself to monetary and fiscal stability- as necessitated by the Maarstricht Treaty. This has fostered market liberalization. Besides, the geographical location of Spain has better positioned the country since it avails an easy gateway not only to European markets but also to markets in Latin America. All these factors work forward in favour of improving both the investment and trade climate for Iberia and Spain at large. Even in the event of the economic slowdown in the European Union region, Spain has carried on with the absorption of foreign direct inflows, thus stabilizing the country’s economic standing, which has in the long run economically benefit Iberia. Spanish foreign direct investment (FDI) has increased by USD 37 billion to reach the USD 68 billion mark between 2001 and 2008. In discrete percentages, the Netherlands contributed 20% of the Spain’s FDI inflow between 2007 and 2008, while the United States of America and the United Kingdom contributed 6.65% and 4.95% of the investment respectively during the same period. This saw the country become an attractive one for investment, including the investment in air transport (Datamonitor 2010, p.21). On the contrary and as earlier noted, the Spanish economy recorded a decline in the second half of 2007. This started right with the teeming of the housing bubble. This sector had been among the leader drivers of Spanish economy, accounting for over nine per cent of the country gross domestic product (GDP) in 2007. The situation went downhill with the deterioration of the United States’ sub-prime crisis. This economic recession negatively impacted the national air carrier, Iberia. This reported slump in the housing sector has over time spread to manufacturing sectors and the service sector- including the airline transport sector, with business confidence survey outcomes showing a negative trend. Iberia’s business operations were greatly negative affected by the 2008 and 2009 severe drop in economic growth. In addition, the country’s GDP was dropped further by 0.8% in 2010. Chances of revival are quit minimal and more especially when it is factored that the country’s consumption and investment expenditure remain to be poor and the undermining of the Spanish exports as a result of a slump in the international markets (Datamonitor 2010, p.23). The Issue of Unemployment Another of the big challenge facing the Spanish government and Iberia’s customer base is the high unemployment accompanied by the falling inflation. This has been the case since 2008. Following the economic slowdown, airline transport activities in the country have been slowed down. Likewise, the level of unemployment has persistently been rising. Illustratively, Tobin (2012, p.1) reports that the owner of the British Airways as well as Iberia did make an announcement that plans are underway to axe over four thousand jobs, sell off some of the aircrafts and at the same time cut routes at the Spanish airline. This is an act that is geared towards fighting for survival for the company since it has over the past been incurring losses. Besides, the rising cost of fuel in the country has equally contributed to losses for Iberia (Evans 2012, p.1). The strong demand in London and equal demand for transatlantic travel show the shooting up of revenues at British Airways. On the contrary, the operating losses of the airline have been increasing as a result of the ever increasing fuel bills (Datamonitor 2010, p.23). The economic growth that was recorded by Spain between 1995 and 2006, to a greater extend, has impacted on the country social landscape. This has in turn had impact on the operations of Iberia. As is the case with a majority of the European countries, social issues in Spain have been facing two principal challenges; of unemployment and an ageing populace. Due to the high rates of unemployment, a majority of the nationals have had preference for low-cost airlines. This has in turn seen Iberia incur huge losses since its flight fares are considerably higher as compared to others. On the contrary, the confidence that the aging population has on Iberia airbuses cannot be assumed and this has all through been advantageous to the company. Iberia has taken into consideration the health needs of the aging Spanish population (Burns & Michael 1998, p.15). Slowness in Adopting Advances in Technology Undeniably, Spain is known all over the globe to be among the slowest countries to adopt advancements in technology. Despite the fact that various fundamental policy measures have been taken in regard to the same, Spain has held on her slowness to the adoption of these technological advances as compared to the rest of the EU member countries. The Spanish innovation climate has over the time not been very imminent, a situation that can be attributed to the role that public sector has been playing with respect to research and development. Besides, the private sector does less in the enhancement the levels of research and development in the country (Datamonitor 2010, p.25). It is thus worth noting that there is a necessity for a unified research and development policy across the regions since the autonomy of the governments within the region on the issue of research and development policy has resulted to the slackening of the country’s innovative system. The chairman of Iberia and International Consolidated Airlines Group, Antonio Vazquez, in his talk on the issues and challenges that Iberia is facing did say that the legal aspect, and more especially the manner in which the air traffic deregulation in the United States of America has been, has resulted in an increased competition as well as the advent of low cost airlines. Antonio has noted of the common European market which has facilitated deregulation in the region. With the introduction of the internet, the relationship between the airline and its customers in various parts of the globe has greatly changed. In the viewpoint of the chairman, the biggest problem to the industry is competitiveness and in order to alleviate the same, there is a need to enter into merger with other airlines whose rail links are of a high speed (Buyck 2004, p. 8). Environmental Concerns On the other hand, environmental concerns are in the fore front when it comes to the ever changing governmental regulation and internal research. However, Iberia’s interest as pertains to carbon emissions, as put across by Antonio, is in line with the ecologists’- that burning of less fuel leads to great saves in terms of money. This in turn ensures that investment is being carried out on cleaner and more efficient engines. Moreover, Iberia’s lighter aircraft as well as biofuel programs is in line with the company vision of ensuring a carbon-neutral air travel by the year 2050 (Johnson 2007, p.A9). The company is also working towards an open airspace over Europe so that planes are in a position to make direct flights to the various destinations thus minimizing on carbon emissions. Internal Strategic Responses Even in the event of the above discusses challenges emanating from the external environment, Iberia airlines has all the way been focusing on ensuring a reduction in costs and upholding quality of service provision. The quality of service that Iberia is concerned with is geared towards making Iberia the choice airline. Besides, the company is focused on ensuring that the base pay is at its minimum as the market can take and at the same time ensure a close-eye monitoring of the pay levels in the market. Although Iberia has been making each and every possible to offer value added services, it is geared towards increasing the company’s ancillary revenue (Evans 2012, p.1). The firm needs to engage in empowering employees to enhance their flexibility when serving customers. Further, the layers of hierarchy need to be removed as this will better customer service. The confusion in roles and responsibility can be done away with by defining roles. The very undeniable fact is that the airline industry, in its entirety, has been in a state of crisis for a period of the past four or so years. Moreover, the future of the industry is seemingly uncertain. As a result, IAG (the British-Spanish airline held accountable for British Airways and Iberia) has made an announcement regarding its plan to cut around four thousand five thousand jobs as well as cut down its fleet by twenty five aircrafts at Iberia. This action is part and parcel of the company’s restructuring plan geared towards restoring the profitability of the company. This move, branded “fight for survival” comes after the Spanish air carrier made a nine-month loss totaling to USD 334 million in 2012. And besides, Iberia has, in all of its markets, been recording losses. As argued out by Tobin (2012, p.1), the International Airlines Group took the initiative of relinquishing 20% of its workforce and went ahead to states that in the event that the airlines union does not comply in the near future, these cuts would even increase. Besides being unprofitable in all markets as aforementioned, IAG had noted that Iberia had been burning over £1.4m on a daily basis. These struggles through which the airline service provider is undergoing are believed to have originated from Spain’s deep recession and the high rates of unemployment (Tobin 2012, p.1). Willie Walsh, the Chief Executive of IAG, being the initiator of the restructuring plans at British Airways, became a victim of a number of strikes from the Unite Union. In his statement Walsh says that for a lengthy period of time, the tapered self-interest of the few in the industry has led to the nullification of the long-term future of others- whoa are the majority. Since it is in a fight for survival, Walsh has made an assurance that there has to be a transformation so as to ensure that the company’s cost base is quantifiably reduced if at all there are any hopes of growing its profitability in the future. At the moment, Iberia is holding agreement talks with the unions on the issue of the restructuring process as well as the associated job cuts. The management has even stated that in the event that these talks do not bear fruits, Iberia will have no other alternative other than embarking on deeper cuts and more drastic reduction in both the size and scale of the company’s operations so as to secure the natural long-haul traffic flows in the region and in the end safeguard the future of the company. For instance, at one point, the Spanish airline had to cancel over a third of its flights as a result of the strike of the pilots. This is a decision resulted at since the company was afraid that more jobs will be lost in the event that Iberia has its planes diverted for used by its planned new budget carrier. Although Iberia had scrapped off over a hundred domestic and international flights, it had made unrelenting effort to ensure that seats are found on other of its flights or on carriers for each and every of the ten thousand travelers affected by the day’s strike. Additionally, it is in the plans of the Spanish Iberia Lineas Aeres de Espana to sidetrack jetliners from both money-losing domestic and medium haul routes in Europe for Iberia Express. This is hoped to be so implemented in the birth of 2013 via the use of lower-earning freshly hired pilots and flight attendants (AP 2011, p.1). A chart showing the flights that Spanish Iberia had to cancel Source: IAG Iberia’s Restructuring Plan It is worth noting that Iberia’s restructuring plan has a number of key initiatives including, the reduction in capacity of the airline’s network by approximately 15% in the year 2013, downsizing of its fleet by twenty five aircraft and laying focus only on the profitable routes. In seeing to it that its fleet is rationalized by the number mentioned above, IAG is focused on reducing Iberia’s A320s and A340s and is stated in the fleet plan realizable by 2015. In their stead, Iberia Express will be plying the routes which were earlier being served by both A340s and A320s. In a country with over five million unemployed people, a new airline assures more than five hundred job opportunities, a number which is expected to double in the event that the company realizes its full capacity. Right from the start, Iberia Express has had a punctuality rate almost hitting 100%. Its business strategy of being in a position to adopt the present situation as well as its quality guarantees the carrier a bright future (Michaels & Carlta 2005, p.2). More Investment in Short- and Medium- Haul Flights As attested by the close of a number of other carriers, Iberia has come to the realization that traditional business model for both short-haul and medium-haul routes are no longer feasible. This has so been as a result of competition from low-cost airlines among other forms of transport, not forgetting of the structural transferal in customer priorities in these markets. In addition, Iberia banks on having a considerably broad range of routes of this nature as they avail over 70 per cent of the carrier’s traffic on the route of a long-haul nature. The long-haul routes are not only profitable to the carrier, but also are in line with Iberia’s future growth strategy (Wall 2006, p.25). This is better explained by the below diagram Source: IAG Negotiations with the Workforce Iberia has also made negotiations with and reached a common ground with its cabin crews and ground staff over a number of measures which will ensure that costs are contained and at the same time productivity elevated. The unfortunate thing is that event in the event of the numerous meetings its pilots over the past two years, agreements were hard to be rested upon and Iberia opted for the launching of Iberia Express as the perfect alternative, whose flights were geared to meet both the short- and medium-haul routes viably, while at the same time serving traffic to the long-haul network of the company. Iberia Express has actually guaranteed formal employment commitments of the cabin and ground staff unions, which account for over 90% of Iberia’s personnel. In addition, Iberia has assured that the creation of Iberia Express does not, at its least pose a threat to the already in existent jobs (Watts 2007, p.30). Over the past, it has been noted that it is in Spain where the productivity of Iberia’s pilots has been the lowest. Their annual average flight hours total up to 650, which is quite low as compared to the number of hours permitted by the law- of 900 hours a year. According to the restructuring plan, the collective agreement reached with Iberia has specified a limit of 820 hours a year in the short- and medium-haul fleets while that of the long-haul fleets is set at 850. Additionally, a great percentage of the hours in the long-haul fleets have been worked by extra crew members travelling in the capacity of reinforcement staff- a practice which is in excess of the legal prerequisites (Zakala & Jorge 2005, p.13). This has also been noted to be the case with other airlines. Under the union’s proposal in the restructuring plan, Iberia Express hired pilots will have to enter the ranks of all the carrier’s pilots and be subjected to the same collective bargaining agreement, with similar conditions and restrictions so as to see through an increase in the productivity of the pilots by exactly an equal margin. Without doing away with these conditions and restrictions it would be quite unthought-of to upsurge productivity to a level close to those of competitor airlines. Furthermore, the proposal of the pilots union for payroll cuts had earlier been sternly temporary and would have been diluted with time and in the end fail to avail a remedy for the company’s competitiveness (World Airline News 2012, p.1). Cut of Jobs for in the Company The revenue of Iberia airline was reduced by the high number of employees and implementing the new policies and practices of cutting on the number of employees, the company would be able to enhance development. The HRM strategies call for effective policies that ensure safety of passengers and employees. Management of the firm is focused on delivering customer service through ensuring that the staff and crew are satisfied and qualified. Iberia’s comprehensive transformation plan introduces permanent structural change across all the business areas, its aim being to stem losses and bring back the Spanish airline into profitable ways. Apart from downsizing its fleet and reducing jobs by over four thousand to safeguard over fifteen thousand posts across the airline, the transformation plan also places interest on bringing on board new commercial initiatives which are geared towards boosting unit revenues, including a redesign of their website and increased supplementary sales. The plan also targets on discontinuing third party maintenance, which has been unprofitable and instead have the profitable ground handling services outside Madrid retained (Stephens 2012, p.1). In can therefore be argued out that the short-term aim of Iberia’s transformation plan is to stem the carrier’s losses and craft a route network which is considerably profitable. This bracket in making a suspension of the routes characterized with losses and seeing to it that there is effective feed for the profitable flights plying the long-haul routes. In addition to bringing to an end the carrier’s financial decline, the strategic plan is aimed at establishing a feasible business that has the potential of growing long-term profitability. For both the short-haul and medium-haul operations, a transformation will be carried out in a manner that will ensure that the effectively compete with other low-cost carriers which have been successful in establishing themselves in Iberia’s domestic market. It is hoped that this plan will see through inclusive productivity as well as the introduction of permanent adjustments in employee salaries o as to realize both a flexible and more competitive cost base (Burns & Michael 1998, p.24). The borne uncertainty is whether this IAG-initiated transformation plan to halt losses at Iberia will be successful. With the global environment remaining to be shaky, the situation in Spain is seemingly worse. Indebtedness is presently a big threat to the highly debt-ridden Spain and other European countries including Italy, Greece, Portugal and Ireland. As a result of the deteriorating debt crisis reported in Europe, the governments of the European Union member countries have taken on punitive economic reforms and austerity measures. Nevertheless, these have elicited demonstrations in a number of countries within the region. The recent most being the anti-austerity protests in Spain, which bore a wide spread unrest (Wall 2006, p.44). In conclusion, the current management of performance system of IAG is focused on development of the company; earlier the company had a lower passenger per employee ratio and led to overlap of responsibilities. With the new developments underway, the company drive is to reduce costs in order to increase the overall revenue of the company by focusing on a much higher passenger per employee ratio. The soft HR practices employed in the firm calls for attention to detail, work satisfaction of employees and effective customer service all geared at enhancing customer’s experience. Hence despite the high charges for the flight, the company has been able to attract more customers than its competitors in the market (Asquith 2012, p.1). The objective of IAG is to offer the best customer experience and this has proved to be difficult to attain as it calls for highly trained employees and efficient company culture. The modification in the Iberia airline HR framework allows 360 degrees feedback. Despite the cut on jobs, the company holds employees as essential for the IAG brand hence the need of addressing their issues to enhance employee satisfaction and mitigation of industrial action. References Asquith P 2012, Interview with British Airways In-flight Business Manager. Glasgow. Associated Press (AP) 2011, ‘Spain’s Iberia Scraps Flights During Strike’, The Independent, viewed 30 November 2012 Bernard B 1995, ‘British Airways, Iberia Air at Extremes of EU Airlines’, Journal of Commerce Burns, T & Michael S 1998, ‘Spain Rejects British Airways Bid to Buy 25 Percent Stake in Iberia’, Financial Times, pp.1-28. Buyck C 2004, ‘Iberia Reborn: Spain’s National Carrier Has Transformed Itself into One of Europe’s Profitable Network Airlines’, Air Transport World, pp.1-25 Datamonitor 2010, Spain: Country Analysis Report- In In-depth Pestle Analysis, pp.1-83. Evans G 2012, ‘£211 Loss for BA Owner International Airlines Group’, The Independent, viewed 30 November 2012 Johnson K 2007, ‘Lofty Iberia Gets a Hard Look; Airline Faces Stalled Cost Cuts, Rising Competition As Suitors Circle’,  Wall Street Journal, Eastern ed., pp. A9 Michaels D & Carlta V 2001, ‘Spanish Airline Iberia Embarks on a Mission to Reinvent Itself’, Wall Street Journal Europe, pp. 1-5. Reuters 2012, ‘IAG to Restructure Iberia After H1 Loss’, Airwise, viewed 30 November 2012 Stephens I 2012, Staff and Fleet Cuts at Iberia to Stop Financial Decline, viewed 30 November 2012 Tobin L 2012, ‘BA Warns City it Will Only Break Even’ The Independent, viewed 30 November 2012 Wall R 2006, ‘On Course: Iberia's Year Old Financial Plan Shows Better Results Than Expected’, Aviation Week & Space Technology, pp.1- 44 Watts D 2007, ‘Iberian Flight Signals New Relationship with Spain," Times, London, pp. 62 World Airline News 2012, IAG to Drastically Downsize Iberia in Order to Return it to Profitability, viewed 30 November 2012 < http://worldairlinenews.com/tag/iberia/> Zabala I & Jorge 2005, ‘The View from Madrid: Iberia Is Continuing to Lead the European Aircraft Bond Market’, Asset Finance International. Read More