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British Airways confirms that it is cutting 400 senior cabin crew positions on both its long and short-haul routes.
Read more here: BA cutting 400 cabin crew jobs
The British carrier’s profits are being almost wiped out by the performance of Iberia, which is in a ‘fight for survival’
When flag carriers flew the world like proud extensions of government foreign policy, the merger of British Airways and its Spanish counterpart Iberia would have been unthinkable. But the advent of Ryanair, easyJet and other low-cost ingenues, followed by the dent in demand caused by 9/11, exposed them to the unforgiving economics of modern aviation. The industry has lost $25bn (£16bn) since 2001, in a decade littered with redundancies, financial restructurings and bankruptcies.
The formation of International Airlines Group (IAG) through the merger of BA and Iberia in 2011 was supposed to muster strength from an imperilled business model. The group would earn more revenue for less cost, while pooling expensive overheads such as buying aircraft. Speaking as BA chief executive at the time, Willie Walsh, now chief executive of IAG, said BA would benefit from adding Latin America to its lucrative transatlantic routes. “We are very pleased to have the combined network of BA and Iberia,” he added.
It is now clear that one half of IAG entered this modern marriage still rooted in an earlier era. According to IAG’s nine-month results, BA made an operating profit of €286m (£229m), bolstered by its UK-US routes and the accumulated benefit of years of cost-cutting, including a bitter industrial dispute with cabin crew in 2010. Iberia, on the other hand, nearly wiped out BA’s gains with an operating loss of €262m.
This month Walsh inadvertently confirmed how far Iberia lags behind BA as he warned that the partner airline was in a “fight for survival”. He used the same phrase about BA three years ago in the months before the crew dispute.
Further upheaval is on the way. Walsh said he would cut 4,500 jobs at Iberia – 20% of the workforce – and shed a quarter of its aircraft fleet in a bid to stem losses running at €1.7m a day.
In Madrid, the feeling among Iberia workers is that their airline is very much the junior partner in IAG. They see IAG’s recent €113m offer to take over profitable low-cost Spanish carrier Vueling as an indication of where Iberia is heading. Their concerns are adding new members to a generation of indignados alarmed by an economic slump that has left one in four adults on the on the dole. Trade unions are determined to fight the plans.
“This isn’t a plan to fix Iberia but dismantle it,” said Manuel Atienza, who has been a flight attendant for 40 years and is a spokesman for the UGT union federation. “If anyone thinks we are scared and resigned, they are very much mistaken.” The Spanish pilots’ union, Sepla, has long had a reputation for industrial muscle and a gathering of 1,000 of its Iberia members voted last week to reject the redundancies and demand a demerger of BA and Iberia.
Maria López, who has worked as an Iberia flight attendant with Iberia for 35 years, complained that workers were suffering the consequences of management decisions and circumstances beyond their control. “The mood is one of deep sadness, as well as anger and indignation,” she said. “We understand that many airlines are running at a loss in the current economic situation and have loss-making routes, but I don’t think this is the way to solve it. There is a lot of shared responsibility and it doesn’t make sense to go after the weakest – and 4,500 is a lot of people.”
While Iberia staff are counting the cost in terms of thousands of colleagues, for shareholders it could be in the millions of pounds. A footnote in IAG’s first-half results, published in the summer, refers to an “impairment review” that could lead to a writedown of Iberia, whose goodwill and brand is valued at more than €500m on IAG’s books. Defending the deal, IAG points to a strengthened combined balance sheet and says Iberia has gained from €101m in “synergies” since the merger.
Antonio Sanchez, a retired Iberia economist, said the carrier’s demise would have far-reaching economic repercussions in a country that depends on tourism for more than 10% of its economic output: “It just isn’t the same when you no longer have a flagship. St Louis, Missouri suffered terribly after the collapse of TWA, because there are a lot of secondary services linked with a flagship. Pilots’ schools have to close, you have no bargaining power over routes.”
Attempts to restructure Iberia may not prove an easy fight, even for a man of Walsh’s reputation for enjoying the battle. Employees will be looking with interest at developments at Heathrow, where BA’s management are reluctantly moving to union recognition for the “mixed fleet” of cabin crew. The fact that this tranche of staff, established by BA in 2010 to undercut the pay and conditions traditionally enjoyed by its crew, has rapidly unionised suggests that not even eager young recruits are willing or able to sustain the flexible working demands their bosses want to impose.
Stock market analysts are largely supporters of airline consolidation along the lines of IAG, Air France/KLM and the shopaholic Lufthansa, which has brought Swiss and Austrian Airlines under its wing in recent years. Andrew Lobbenberg, an analyst at HSBC, said: “There can be no doubt that the scale of the Spanish downturn was not part of the game plan when BA originally combined with Iberia.”
However, he added that Spain’s economic troubles and Iberia’s losses gave Walsh the opportunity to correct those problems quickly: “The original logic of the combination continues to have merit: it combines BA’s strength position on the mature North Atlantic market with Iberia’s strong position in the fast growing South Atlantic market.”
Gerald Khoo, an analyst at Espírito Santo, has warned that the market has underestimated the scale of the problems facing Iberia, but agrees that progress towards consolidation is inevitable. “The strategic logic of consolidation is still there, as is the attractiveness of Iberia’s Latin American network,” said Khoo. Walsh himself puts it as starkly as ever: “Consolidation is inevitable in our industry.”
Walsh remains bullish about the deal, telling the Observer this month that he had “no regrets at linking up with Iberia – not at all”. But he is now seeking savings on a more significant scale, and warned: “No airline can guarantee its survival. And the reality is that Iberia cannot continue in its present form.”