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IAG CEO on Protectionism, Low-Cost Competition and Passenger Experience – Skift

Editor’s Note: Following our previous CEO interview series in online travelhospitality, and destinations, as well as our recent CMO series across verticals, we’ve launched another series, this time focused on the CEOs of leading airlines outside of the United States.

airlines_ceo_logoTo better understand the challenges facing airlines in an age of fluctuating oil prices, rapid growth, and changing passenger expectations, our Future of Passenger Experience series will allow leaders in the industry to explain their best practices and insights. 

This is the latest interview in the series.

Years ago, Willie Walsh earned one of the more unusual nicknames in the airline industry.

After he drove to remove costs at Aer Lingus, the Irish carrier he led from 2001 to 2005, some called him, ‘Slasher Walsh.’

It’s a nickname he probably deserved, after cutting 2,000 jobs on his first day as CEO, ending unprofitable routes, and squeezing revenue from every asset he could — even selling the company’s art collection. But considering the rough fiscal shape Aer Lingus was in, his moves were probably necessary. Had Walsh not remade Aer Lingus, the airline could have gone out of business.

Walsh, now CEO of International Airlines Group, the European company that owns British Airways, Aer Lingus, Iberia, and the Spanish low cost airline, Vueling, remains unafraid to make decisions unpopular with unions and passengers, so long as they make sound financial sense. Airlines, he has said, must adapt, or they will die.

Before taking over IAG, Walsh was CEO at British Airways, where he deftly (and sometimes combatively) took on the carrier’s unions, ensuring it could compete with discounters like EasyJet and Ryanair. He made unpopular decisions, like cutting staff and withholding raises, but his choices helped the airline fight incursion into its markets. Walsh avoided making many of the same mistakes as Air France, which still has not implemented a cohesive strategy to compete with low-cost airlines, partly because of opposition from its employee unions. 

Now, as head of the company that owns four carriers, Walsh is a little less involved in the day-to-day functions of running an airline. But he remains committed to cost cutting and efficiency. Not long ago, for example, British Airways announced it would stop providing free meals on short-haul flights, as it has for decades. It’s a move Walsh supports.

Walsh is also a proponent of further European airline consolidation, arguing the region has too many weak players. Some airlines, he has said, could be targets for IAG — at the right price.

We interviewed Walsh on Nov. 10 in New York City to discuss issues facing IAG, including political changes in the UK and United States, competition from low-fare airlines, and changes in passenger expectations.

Note: This interview has been edited for length and clarity. 

Skift: Thank you, Willie, for joining us. I’ll start with a question you’re probably expecting. Is it too early to know how the change in government in the United States will affect IAG?

Willie Walsh:  I think it is too early, but I’ve listened to what Trump said during the campaign and I listened to what he said during his victory speech. I think we’ll see a change in the tone now that he is President-elect. If he’s to deliver on the promises that he made around generating employment, growing the economy, investing in infrastructure, I see that as positive.

The U.S. is a very important market for us. Three of the four principal airlines fly to the United States. For Aer Lingus it’s very important because a lot of their revenues are generated in the U.S. Their transatlantic operation is primarily a U.S. point of sale. Clearly it’s a big part of the British Airways network. We believe that the links between the U.S. and the UK will continue to be strong and if anything will probably strengthen. Both countries are in a changed environment with the UK having decided to leave the EU. I think trade between the UK and the U.S. has always been good, and I suspect it will be stronger going forward. I’m optimistic about what Trump in the White House means for aviation. We’ll wait and see, but a strong U.S. economy has always been good for our business.

Skift: As you alluded to, the U.S. election is not the only recent political shock IAG is facing. How has Brexit affected the company?

Walsh: The difference between what’s happening in the U.S. and what’s happening in the UK is you know how to transition power from one president to another. There is a system in place. Now, the comment that I heard people making was Trump isn’t doing it the way others would have done. He doesn’t have a strong or a large transition team. At least you know the process. In the UK, nobody knows how Article 50 works. It’s never happened before, and you’ve seen already the problems with the government being told by the High Court that they need to have a vote in Parliament before they can trigger Article 50.

What we’ve seen in the lead up to the referendum vote on the 23rd of June was, just a few weeks before that — probably the third week in May — we could notice, looking back, softening in U.K. corporate activity. As the polls began to suggest that it might be a vote to leave, I think there were corporates just pausing to understand what it would mean for their business and what it would mean for investment. Since then, the corporate activity has picked up a little bit, but it’s still lower than we would have expected at this time of the year. We would expect that to continue for a little while until there’s a bit more certainty around what Brexit means.

Then following the referendum vote, you saw the collapse in the value of the pound. Now, that’s what we thought would happen so when we were looking at various scenarios, the scenario that was obvious to us was if the vote was to leave, the pound would weaken. If the pound weakened against the dollar and the euro, that would have an impact on our position for two reasons. One, we’re short dollar. We pay for fuel and aircraft-related activities in dollars so we have more dollar costs and dollar revenue so a strong dollar would add to our costs in pounds and in euros.

The bigger impact was, at IAG, we report our finances in euro. When we take the British Airways profitability, which is in sterling and translate that into euro, it’s now being translated at a much lower rate of exchange. Investors understand that. We don’t hedge for translation issues, but it means when we report our BA profitability in euro terms, we’re reporting a lower profit. In sterling terms, it’s the same but in euro it’s lower.

Skift: I also wanted to ask you about U.S. expansion. At Aer Lingus and British Airways, you’re expanding into what people might call secondary markets — cities including Hartford, Austin, and Oakland. Why do you see opportunity?

Walsh: Hartford is interesting because that’s a great example of where you had a community, a city and state coming together to say, ‘We want a trans-Atlantic link.’ They approached Aer Lingus, as a lot of cities in the U.S. do. Hartford convinced Aer Lingus that if Aer Lingus operated service it would get support from the business community. It would be a financial success. What we’ve seen so far is very, very good.

Austin was the same. I was first approached by Austin maybe six or seven years ago. I met the representatives of the airport at a conference and they said to me, ‘It’d be good to have a direct service to Heathrow.’ I was polite, but I said, ‘There’s no way it’s ever going to happen.’ There’s no way we would ever serve Austin.

But what happens? Well, then we get the 787, and it’s a different size aircraft. The economics of it are better. And, we have the joint business with American [Airlines]. [It] wouldn’t have made sense to British Airways in isolation say six, seven or eight years ago. With a 787 in the fleet and with the joint business with American, put all of that together and suddenly these destinations actually do work.

We’ve always said the U.S. represents growth opportunity for IAG. You’ve seen the recent announcements [from British Airways] — New Orleans out of Heathrow. Fort Lauderdale and Oakland out of Gatwick. We’ll continue to look for opportunities to expand our business. We’ll probably announce a new destination for Aer Lingus sometime in the near future. We see the U.S. as a potential growth market for IAG. [Editor’s note: A week after this interview, Aer Lingus announced a new three times per week flight from Dublin to Miami, starting in September 2017.]

Skift: You mention the new flights from London Gatwick to Fort Lauderdale and Oakland. Norwegian Air, a discount airline, is already flying both routes. Is that why you’re entering the markets? Are you concerned with the competition?

Walsh:  It’s not a concern. It’s competition. I disagree with the people who say that Norwegian is somehow breaking the rules. I think they’re complying fully with all of the requirements of the Open Skies agreement. I think they’re smart people there, and they’ve seen a way to do it in a different way than the traditional airlines. We’ve supported Norwegian’s application for the license for their Irish subsidiary.

I’ll compete against them. That’s the right way to do it. I’m not going to try and find some regulatory red tape to try and stop them. We’ll just go head-to-head with them. We’ll beat them in competition and we believe we can. We’ve watched with interest what Norwegian has done. We’re interested to see how the consumer would respond to the Norwegian product. The unbundling. We’ve been pleasantly surprised because it’s clear that Norwegian generates quite a bit of revenue through the unbundling [and] through the ancillary activities. It demonstrates that consumer behavior has changed, and is changing.

Skift: What about the old argument that passengers won’t want to fly discounters on long flights?

Walsh: If I go back 10 years ago, the argument then was probably that the maximum range of short-haul, low-cost was about four hours. Beyond four hours, it wouldn’t work because customers wouldn’t accept the idea that you had to pay for water, pay for a drink, pay to check in a bag, pay for a meal. Norwegian has clearly demonstrated that the consumer is happy to do that.

Skift: U.S. airlines are also concerned about competition from Gulf airlines. You have a different mentality, perhaps because Qatar Airways owns 20 percent of IAG. What are your opinions of Qatar, Emirates and Etihad?

Walsh: We’ve always had peace with them. I’ve been a great admirer of the Middle East carriers for a long time — predating by many years Qatar’s investment in IAG. I’ve consistently admired what Emirates has done. I’ve for years talked about what Dubai was doing in terms of its approach to aviation, and contrasted what’s happening in the Middle East and what happens in Europe. In Europe, we’ve taken aviation for granted. In the UK, we take it so much for granted that we tax it, because we believe the economic benefit will always be there. In the Middle East what they’ve seen is that it’s a potential opportunity to drive their economies, and that’s what Dubai has done.

I point to the development of Dubai as an international hub. In 2001, I think Dubai ranked No. 99 in the world in terms of international traffic. In 2014, it was the No. 1 international airport in the world. I don’t care who you are, you’ve got to be impressed by that. You don’t do that without having serious ambition, foresight, determination.

The first place these carriers have flown to is Heathrow. Emirates has been in London since 1988 or ’89. Our experience in dealing with them is they’re perfectly rational and completely commercial. We’ve seen no evidence of anything that would cause us concern.

I also have to remind my colleagues in Europe who complain about them. They’ve received state aid from their governments. It’s a bit hypocritical to be complaining about what happens in the Gulf and you turn a blind eye to what happens in Europe. Europe has been terrible in terms of providing state aid to airlines. I think if there is a case that there should be no state aid, well then it should apply to everybody. Europe has a system where state aid can be provided under certain circumstances.

I respect them for what they’ve done. I’ve got a very good relationship with [Emirates CEO] Tim Clark, with [Qatar CEO] Akbar Al Baker, and with [Etihad Group CEO] James Hogan, and we compete with them. In the same way as talked about Norwegian, we compete with them. We just get on, so we don’t waste any time or energy worrying about what it is they’re doing. They’re there. We believe they’re always going to be there, so we just get on and compete with them.

Skift: Is this a nice way of saying American, Delta and United have overreacted? The three airlines fund a lobbying group that wants to ban the Gulf trio from further U.S. expansion. 

Walsh: I think so, to be honest with you. To me, it [says] worrying things about protectionism that I think is unhealthy for our industry. We disagreed with the submission that the U.S. airlines made. We publicly stated that. We said that some of the figures in the document were inaccurate. They based some of their arguments in effect on the impact of the Middle East [airlines] on us. We said, ‘they don’t understand. They’ve got that wrong.’

Traffic flows from the U.S. over Heathrow into India have changed, but they’ve changed because we’ve changed our [model]. It was never a profitable part of our business. What we decided to do was to put a smaller gauge aircraft on our London-India services. We weren’t looking to fill those aircraft with lower-yield transfer traffic. When we analyzed the value of that transfer traffic to us, it made no sense.

It makes no sense [because] Heathrow is the most expensive airport in the world. Trying to force high volume, low-yielding transfer [passengers] over the most expensive airport doesn’t make financial sense. When we look at the options that were available to us with new technology aircraft like the 787, it made much more sense for us to change our network and put smaller gauge aircraft into India, which is a good market for us.

Skift: What about consolidation? You said in the recent past that you think Europe is ripe for more airline mergers. Why? And is IAG is looking at acquiring more airlines?

Walsh: The industry is still very much fragmented in Europe. You’ve seen a lot of consolidation in the U.S., and I know there’s some people who feel it’s gone a bit too far in the U.S, with the top four carriers [having] 85 percent of the domestic market. If you look at Europe, I think top four would have just over 50 percent. It’s quite different. But there are a number of airlines that we believe need support, and we think consolidation will be a positive.

There are other airlines, when you look at their shareholders, it’s obvious [they want to sell]. Take Wizz, [a Hungarian low cost airline] for example. The shareholders in Wizz, we believe, would want to sell it. They’re not long-term investors so we think Wizz comes into play — whether they do a further IPO or whether somebody looks to acquire Wizz. We looked at it previously. We thought it was expensive and it didn’t really fit with IAG, but we think it could fit with others in Europe.

We believe there is a case for further consolidation and there will be opportunities for further consolidation. We’re not actively considering anything at the moment, but we’ve got a structure that works and if the right opportunity were to present itself, we could move easily to do that. There’s nothing that we see at the moment of particular interest to us, but we believe there are things happening that would be of interest to others.

Look at what Lufthansa’s doing with Air Berlin. It’s consolidation in a different form. I think there are a number of smaller airlines in Europe that are struggling at the moment and I think this winter is probably going to make or break some of those. I’d be surprised if this time next year we haven’t seen another round of consolidation. I thought it would happen in the U.S. and it did with Virgin and Alaska. You saw both JetBlue and Alaska were interested in [Virgin America] so I think there’s still a little bit to play in the U.S. but not as much as there is in Europe.

Skift: Historically, airlines under competition from low-cost carriers had two options. They could start their own low-cost airline, as Air Canada has done with Air Canada Rouge. Or they could just add more seats to existing planes. At British Airways, you’re choosing to add more seats on leisure routes that compete with Norwegian. Why?

Walsh: We’ve done everything. If you’re looking from an IAG point of view, we’ve bought a low-cost airline, Vueling. We’ve built a low-cost airline, Iberia Express. We’ve transformed some of our airlines in terms of their cost base to be more competitive. Then looking at BA, we recognize that the BA operation at Gatwick, which is quite different to Heathrow, serves more of a leisure market than a business market. An opportunity for us to be more cost competitive was to look at densification of the economy cabin. We decided to go 10-abreast on our 777s.

I’m surprised by the [negative] reaction to that because if you look at Emirates, they’ve been 10-abreast on their 777s since they took the aircraft. There are a lot of airlines who operate the aircraft in the 10-abreast configuration. By putting more seats in, our average cost per seat comes down, and if our average cost per seat comes down, it means the average price that we can charge comes down, and it makes us more competitive in that market. Clearly consumers are prepared to travel in that environment because they’re traveling with our competitors.

We think we can maintain the quality of the BA brand. It’s a challenge for BA. Some of the BA long-haul aircraft we have four different cabins. First, we’ve got the Club World or the business product, [and then] the first class product, and a premium economy and an economy. When you try and provide four different product offerings, four different propositions to different customer segments on one aircraft, it is difficult. We’ve been able to do it in the past, and I have no doubt we’ll be able to do it in the future.

credit: Vueling

Vueling is one of Europe’s more successful low cost airlines, but its parent, International Airlines Group, does not expect it to fly trans-Atlantic routes.

Skift:  IAG owns a successful low cost airline in Spain called Vueling. Why not have it fly long-haul?

Walsh: We have debated it. They don’t particularly want to do it. I’m not so sure it would be the right thing for them to do. I think focusing on the short-haul market is the right thing in the same way as Ryanair. It’s clear that [Ryanair CEO] Michael O’Leary has ambition to do some long-haul, but that doesn’t mean Ryanair has an ambition to do long-haul. Doing short-haul, low-cost is quite different to long-haul, low-cost.

When we’ve looked at doing some long-haul flying with Vueling, we’ve concluded that it’s probably not the right thing to do. We could do it, but we think there’s other options available to us.

Skift: Before IAG bought Vueling in 2013, one of the great things about the airline was that it had a fresh prospective because of its startup culture. How do you retain that culture at an airline owned by a giant company?

Walsh: It’s a bit of a challenge but I think when we created IAG, we recognized that for [all of] the airlines to be successful, we had to give them a degree of autonomy. Where there’s value to be created by centralizing activity and where it doesn’t directly impact with the brand or the customer proposition, [we will do it]. Then we leave the airlines to focus on their network. Primarily, they do all the network planning but we ensure there’s no unnecessary overlap or competition between members of the group that doesn’t make sense. A little bit of competition is going to be healthy.

I’ve been in the industry a long time. I’ve seen what happens when airlines create low-cost subsidiaries. It doesn’t tend to work. I think we’ve demonstrated for it to work you have to have separation between the various airlines. IAG is not an airline. We bring structure and we bring a process, but we keep the airlines focused on their own areas of activity. If Vueling was owned by British Airways, it would be gone by now because there would be an internal tension that [would be] easily resolved by shutting down the low-cost [airline]. That’s what tends to happen.

There are very few examples of where you have an airline with a low-cost subsidiary where both of them are profitable. If you look at the U.S., [in the early 2000s] you had Ted [from United], and you had Song [from Delta]. You had all of these that started and then they disappeared.

We recognized this at the beginning. We couldn’t allow Iberia or British Airways to interfere with [Vueling’s] culture. We’re able to keep separate cultures in the operating companies. We only allow them to talk to one another where that makes sense. We try and learn from the best of the operations and share where we believe there’s value, but otherwise they’re kept away from one another so there’s no fear that you’re going to have the low-cost culture of Vueling contaminated by legacy thinking in one of the other airlines.

Skift: Is there anything you learned as an airline executive 10 or 15 years ago as Ryanair and EasyJet were growing that is helping you now with the incursion from low-cost, long-haul carriers?

Walsh: Absolutely. The first thing is respect. I can remember being at Aer Lingus back in the ’80s and ’90s when the view was, Ryanair will never work. There was, I think, a strong degree of arrogance toward the development of low-cost and short-haul. The traditional thinking was, ‘You cannot make money doing things that way.’ Of course you’ve got to remember, when Ryanair started, it didn’t start as a low-cost airline. It started as a full service airline. It morphed into a low-cost airline through necessity because it ran out of money.

If you talked to Michael O’Leary, the honest truth is that they took meals off the aircraft because they couldn’t afford to pay for the catering. Then when they took the meals off, they recognized that if they didn’t have all this food on board the aircraft, you didn’t have to clean it as much, so they were able to take more off. Then it was only after that [when] they started looking at the Southwest model.

What we’ve learned is that you need to treat these people with respect. Just because you couldn’t make it work, or nobody else has made it work, doesn’t mean that nobody will ever make it work. I think that’s a very important lesson. I still have a copy of the letter in my home in Dublin where Aer Lingus had the opportunity to buy Ryanair for 29 million Irish pounds. Aer Lingus decided not to do it. When you think about it, they could have bought Ryanair for £29 million. People say to me, ‘That must be one of the worst business decisions ever.’

In truth, it was the right decision for Aer Lingus — for the wrong reasons. Had Aer Lingus paid £29 million to acquire Ryanair, they would have shut Ryanair down. They wouldn’t have developed Ryanair. Ryanair would not be the airline it is today. They would have wasted £29 million.

When I took over at Aer Lingus in 2001 following the tragic events of 9/11, I contrasted what I was saying to what O’Leary was saying. I was talking about the greatest crisis we’ve seen in the airline industry, and he was talking about the greatest opportunity he’d ever seen. I’m facing bankruptcy and he’s looking at an opportunity to expand faster than he’s ever expanded. [I have] great respect for what they’ve done and [that’s] why when we look at airlines like Norwegian, we respect them. We look to see if they’re doing anything different, doing anything smart. If they are, we have no problem saying, ‘Well, we could copy some of that.’ Or we can build on some of the initiatives that they have.

Skift: Ryanair hasn’t had food for years, and passengers are OK with that. But British Airways is now removing food on short-haul flights, and customers are upset. Why?

Walsh:  Yeah and customers always will be [upset] when you remove something. [But] as you’re looking to be cost competitive on that short-haul activity, you start looking at any way to reduce your costs. [With] meals that we traditionally served, I’ve never met anybody who said, ‘I fly because you give me a great meal.’ They’ll take it if you give it to them. In some cases they’ll say the quality isn’t great. We waste an awful lot of food, so our view is, we probably got to the point where we weren’t giving the customer the right choice. What we found was customers aren’t concerned about paying for something — so long as it’s something they’re choosing to buy, rather than being forced to buy.

Our strong belief is that this becomes a better proposition for the customer. Yes, there will be a reaction as you transition from one proposition to a new proposition but I have no doubt, having gone through this before, once we go through this with British Airways, the same will apply.

Skift: British Airways is ending free food more than a decade after U.S. airlines removed meals. Why did this take so long?

Walsh: I think it’s because the competitive landscape in Europe is very different to the U.S. I think the expectation has been very different, but it’s changing. Europe encountered low-cost [competition] later than the U.S. Southwest predates Ryanair in its low-cost form by 15 to 20 years.

Things change and we’ve got to be prepared to change. I think there are times when we drive the change in customer behavior, and there are times where we follow a change in customer behavior.

Skift: U.S. airlines have at least one advantage over carriers in the rest of the world. They were faster to add Wi-Fi. IAG’s airlines are finally adding connectivity, but it has taken awhile. Why?

Walsh: Well, the U.S. is a landmass and in Europe we’ve got a lot of water and therefore we haven’t had an efficient air-to-ground system and satellite has been too expensive.

We deliberately decided we wouldn’t put it on our aircraft because we didn’t want to make a promise to the customer where you’d have Wi-Fi when it doesn’t work. We wanted to wait for a robust system to be in place, which we now believe it is. Yes, we’re behind, but where you’ve seen Wi-Fi introduced in Europe, it’s very expensive and it’s very slow. It’s irritating for the customer who expects to be able to work and can’t. If you’re sitting there staring at a screen waiting for it to refresh, and you’re waiting to do some work, that is worse than if you know you’re not going to be able to do any work.

The main reason we waited was we wanted to be certain that the technology worked. We didn’t want to undergo significant costs and retrofit to our aircraft only to have to rip it out again in the near future. We’re satisfied now that what’s available today is robust and will work very well. It will be as good as the connectivity you can get on the ground.

The other issue is a big debate as to whether this is a potential revenue stream or whether this is a cost. My view is that there’s limited opportunity to generate revenues, and we’ll certainly be trying to do that. [Wi-Fi] is going to become a requirement. Customers are going to demand Wi-Fi. If you don’t have it, that will make a difference between people flying with you or not flying with you.-

Skift: Your joint venture partner, American Airlines, has WiFi on its London routes. Do you find some customers book American rather than British Airways on day-time flights when they want to work? 

Walsh: Not so much. I think they will tolerate it up to a point. If we had a situation where [two] years from now we did not have Wi-Fi, then yes. I think we [would] see a situation where some people will book away.

credit: BA

The British Airways Club World business class was innovative a decade ago, but most other airlines now have better products.

Skift: In November, British Airways hinted it may be making changes to its business class product, which is probably the most dense configuration at any airline. What the plan?

Walsh: You’ve got to remember, the product that we developed was innovative. We were the first with the flat-bed in first, and first with the flat-bed in business. People have been investing to catch up. It’s certainly a much more competitive landscape today than it was and more and more [airlines] have genuine flat-beds. Still, not everybody, which I think comes as a surprise to some business people when they get on an aircraft and don’t have a flat bed in business class.

If you think back, the original design of our business class cabin or Club World cabin was around the 747. A lot of the things we did were designed to work on a 747. They don’t necessarily work the same way or as well on 787s, or A350s, A330s. As the aircraft have changed, the advantage of having some of the configurations that we have have not been as strong. We’ve recognized that seat technology is improving all the time. There are more options available and we’re always open to looking at doing things in a different way. The challenge we’ve had is that the configuration we use is the most efficient use of space on the aircraft. Clearly, having efficiency when it comes to utilizing limited space aboard an aircraft is very important.

I think a mistake that British Airways made is, because we had a patent [on the configuration] nobody could match it. We probably should have made that available to others. I suspect had we allowed people to use that configuration, more and more people would have adopted it. The view at the time was this was a competitive advantage and probably people thought a sustainable competitive advantage. It’s clearly not sustainable today, obviously. Everybody’s gone with flat-beds. They’ve just configured them in a different way.

We recognize that there are some of our competitors who probably have a better product than this now and that’s something that we need to be conscious of. That’s why we’re looking at it. We’ve not made any decision yet. Without doubt, we will still have the product that we have in our aircraft and it will be there for some considerable time because [while] introducing a new configuration on a new aircraft is easy, reconfiguring an existing aircraft is very expensive and it takes a long time.

Skift: British Airways was also early in adding premium economy. Why do you suppose that cabin has been so popular?

Walsh: It’s been extremely popular. There are a lot of people who are prepared to pay a little bit of a premium for better service, and struggle to justify paying the business class fare with the flat-bed and maybe even argue that they don’t need the flat-bed. If you’re traveling in the daylight, westbound flight on the trans-Atlantic, you’re unlikely to want to sleep. It’s very different when you’re traveling on the return through the night, then a flat-bed makes it more important.

We see a lot of people traveling on leisure who just want a little bit more comfort and are prepared to pay for it. We also see business people who are price conscious.

It has been a great success. We’re certainly investing in that. We’re putting premium economy into the Iberia aircraft. We’re looking at premium economy in the Aer Lingus aircraft.

If you look at it from a business point of view, what you don’t want to do is cannibalize your business cabin. It’s always the debate, ‘Will this be trading up or trading down?’ The truth of it is, you’re going to have to give the product that your customers want. More and more customers like that product and want that product so we believe that introducing it is a revenue positive initiative. That’s certainly been the experience in British Airways. With the modeling that we’ve done for Iberia, we believe it will be revenue positive as well.

You will get some people trading down from business. You’ll get more people trading up from the standard economy cabin to the premium economy. That’s what it’s all about. It’s about efficient use of space. There’s very limited floor space on an aircraft and if you can get the right price points, then premium economy works well.

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