Restructuring in airline sector in bid to keep afloat
Despite strong growth in the airline sector in recent years, companies have been forced to respond to tighter profit margins through business concentration and workforce adjustments. While the social partners have approved of some of the government’s plans to revitalise the sector, they are against other measures such as the increase in airport taxes and plans for a partial privatisation of the public airport management operator AENA.
Downturn in airline sector
The Spanish air transport sector has experienced strong growth in recent years, leading to an increase in the number of operators and greater competition. Over the last year, however, the continuing increase in fuel prices and decrease in business due to the global economic crisis have threatened the continuity of many companies in the sector.
In July 2008, the main employer organisations in the sector, the Spanish Association of Air Companies (Asociación Española de Compañias Aéreas, AECA) and the Association of Spanish Air Transport Companies (Asociación de Compañias Españolas de Transporte Aéreo, ACETA), presented the government with a series of proposals that aim to alleviate the impact of the crisis on the sector. These measures range from a reduction in airport taxes to the revision of the application of Directive 2003/87/EC on greenhouse gas emission allowance trading, which limits the possibilities for growth in the sector.
Greater business concentration
In response to the growing crisis, airline companies have adopted a variety of defensive strategies to deal with their falling revenue. Iberia, the main Spanish airline, has tried to deal with its problems through merger strategies. At the end of July, the board of directors of both Iberia and British Airways reached an agreement to merge through the creation of a joint company to be controlled by the two airlines. Previously, the company had approved the takeover of Iberia’s low-cost division, Clickair, by its most direct competitor, Vueling.
The workforce adjustments brought about by the Vueling takeover have been resolved through measures seeking to avert drastic redundancies – such as through shorter working hours and the non-renewal of contracts.
The difficulties facing the sector have led to workforce adjustments and company closures involving the loss of almost 3,000 jobs. At the end of October, an agreement was reached on the redundancy procedure presented by Spanair after it rejected Iberia’s takeover offer (see also the European Restructuring Monitor (ERM) factsheet). This procedure will affect over 1,100 out of about 3,000 workers as part of a viability plan aiming to refloat the company. The trade unions signed the agreement in exchange for guarantees on the future of the company.
In the same month, Futura joined the ranks of other charter companies and small regional airlines that have been forced to close due to competition from foreign companies, when it announced the dismissal of over 1,200 of its employees.
Exceptional measures by government
The main measure adopted by the government after discussions with the employer organisations has been to grant the Spanish airlines a nine-month deferral for the payment of social security contributions. The only companies that will not benefit from this measure are those working on the ground in the handling and maintenance of aeroplanes.
This is an exceptional measure that is normally granted to companies facing difficulties which, on their own initiative, ask the government to defer the payment of contributions. The decision to defer payment is based on an evaluation of the company’s situation.
The most recent example of such a measure came after the strike in the road transport sector in June, which ended with an agreement allowing companies to defer their social security payments (ES0807019I).
Views of social partners
The government measure has been well received by employer organisations in the sector, since it adopts one of their proposals made at a meeting in July. On the other hand, the employers are unhappy about the 3% increase in airport taxes along with the 7% increase in airport security taxes. More significantly, a 5% increase in air navigation taxes was announced by the Ministry of Development (Ministerio de Fomento). The employers have called for a freeze or reduction in these taxes, which are among the highest in the EU.
Meanwhile, the majority trade unions in the sector – the Communication and Transport Federation of the Trade Union Confederation of Workers’ Commissions (Federación de Comunicación y Transporte – Confederación Sindical de Comisiones Obreras, FCT-CC.OO) and the National Federation of Transport, Communications and the Sea of the General Workers’ Confederation (Federación Estatal de Transportes, Comunicaciónes y Mar – Unión General de Trabajadores, FETCM-UGT) – have approved of the mergers, stating that they will reinforce the position of the companies and allow for less severe workforce adjustments. However, the trade unions have also expressed their opposition to the government’s plans for a partial privatisation of the public airport management operator Spanish Airports and Air Navigation (Aeropuertos Españoles y Navegación Aérea, AENA) (ES0810019I).
Juan Arasanz Díaz, QUIT, University Autònoma of Barcelona (UAB)