US embassy cable - 05MADRID710

UNCLAS MADRID 000710 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EAIR, ECON, EFIN, SP, Other 
SUBJECT: IBERIA AIRLINES THREATENS ROUTE CANCELATIONS DUE 
TO SUBSIDIES FOR LOW COST CARRIERS 
 
1. Summary. Executives at Iberia, Spain's largest airline, 
recently threatened to abandon certain air routes if low cost 
air carriers (LCACs) continue to receive public subsidies. 
Iberia accused the GOS of ignoring the disproportionate 
subsidization of LCACs and for permitting a lack of fiscal 
transparency in the sector.  Iberia's comments are the latest 
in a long series of disputes between larger (legacy) airlines 
and LCACs.  Although Iberia has not rejected legal action, it 
is not currently considering it. End Summary. 
 
2.  Iberia Airlines President, Fernando Conde, announced on 
January 26 his company's intention to abandon regional air 
routes if public subsidization of LCACs continued.  Conde 
criticized Spanish and EU air transit authorities for 
ignoring disproportionate subsidy distribution and poor 
fiscal transparency in the air transport sector.  He claimed 
that usage fees paid by legacy airlines at international hubs 
are being funneled into smaller secondary airports to support 
the operation of LCACs.  Conde specifically mentioned RyanAir 
and EasyJet, two popular LCACs who fly to nine and ten 
Spanish cities respectively.  Conde stressed that the 
subsidization of LCACs by regional governments and airports 
is harming the competitiveness of the Spanish airline 
industry. 
 
3.  Iberia announced January 27 that flights to Galicia, 
Andalucia and Barcelona will be abandoned if disproportionate 
public subsidization continues.  However, no time frame was 
given, leaving doubts as to whether the proposed 
cancellations were anything more than threats.  When asked if 
Iberia would consider legal action, Conde replied that it 
remains an option but is not being considered at present. 
 
4.  Econoff met with Iberia International Relations Director 
Elvira Herrero Mateo on February 9 to discuss Iberia,s 
position.  Herrero essentially reiterated Conde's remarks but 
offered no specifics regarding anticipated route 
cancellations.  She reaffirmed that legal action is not 
currently under consideration, but also cited the Brussels 
Zaventem v. Charleroi case, in which the EU Commission 
ordered RyanAir to repay millions of euros that it received 
in public subsidies. 
 
5.  Herrero opined that although the proliferation of LCACs 
is expected to continue, there will always be high demand for 
the convenience and quality of legacy carriers.  She added 
that although Iberia cannot compete numerically with the 
subsidized discount fares offered by LCACs, Iberia offers a 
superior price/quality ratio.  Herrero also noted that legacy 
carriers, unlike LCACs, have the resources to service smaller 
and less profitable localities. 
 
6. Comment. It is likely that the recent comments from Iberia 
were intended primarily to draw the attention of the Spanish 
government and aviation administration (AENA) to the 
unfairness of public subsidies for LCACs.  Iberia has made no 
indication that it will follow through on its threats to 
cancel routes or lodge official complaints with Spanish 
competition authorities.  Instead, more pragmatic measures to 
combat the impact of LCACs, such as premium flight specials 
and plans for the creation of Iberia,s own low cost division 
are currently underway. 
MANZANARES