The IAG chief’s legacy is mixed, says Ian Taylor

The announcement that Willie Walsh is stepping down as chief executive of International Airlines Group (IAG), parent of British Airways, Iberia, Vueling and Aer Lingus, did not come entirely out of the blue.

Walsh revealed his intention to stand down in November but said only that his departure would be before his 60th birthday in October 2021.

That it has come so early probably makes sense, heading off endless speculation about when it might be.

Walsh admitted in November: “I still love what I do.” But he told analysts: “My intention is to be retired within the next two years. I’m going to keep my promise and retire before I’m 60.”

Now he will stand down in March and retire in June.

The choice of Iberia chief executive and chairman Luis Gallego as his successor is also hardly a surprise. The Spanish carrier is the second most important in the group.

Gallego’s appointment will complete a near clean sweep for Spain at the top of IAG and its constituent carriers, perhaps signalling the response to any difficulties the group may have complying with EU airline ownership rules post Brexit.

Alex Cruz, former head of the group’s Barcelona-based carrier Vueling, runs BA.

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Gallego was at Vueling before becoming chief executive of Iberia subsidiary Iberia Express in 2012 and then taking over Iberia in 2013.

Antonio Vazquez, former chief executive and chairman of Iberia, is IAG chairman.

Javier Sánchez-Prieto is chairman and chief executive of Vueling which he has run since 2016 having previously been Iberia chief financial officer.

Fernando Candela, who ran Iberia Express until last September, is now in charge of small but growing low-cost subsidiary LEVEL. And Carlos Gómez Suárez is running Iberia Express.

The only non-Spaniard running a group airline is Sean Doyle. The former BA network, fleet and alliances director took over as chief executive of Aer Lingus at the start of this month, replacing Stephen Kavanagh.

It’s reasonable to assume the new Iberia chief executive will be a Spanish speaker appointed from within the group.

IAG is listed on the Madrid stock exchange as well as in London and the Spanish government has made clear it considers Iberia a Spanish carrier

Loss of identity

I have no idea whether the revelation that Walsh was having an affair with a colleague at BA had anything to with the timing, as the Sunday Times suggested at the weekend.

There is no suggestion of inappropriate behaviour. I doubt that Walsh has his eyes set on a role at Boeing despite speculation he may be just what the troubled US aircraft manufacturer needs.

But I would also be surprised if Walsh just disappears to spend more time on his Thames boat and in his favourite river-side pub.

Leaving aside the gossip, the media reaction to his retirement was astonishing for a quite different reason.

The business newspaper the Financial Times felt moved to comment on Walsh’s departure in its lead editorial on January 10 under the headline: “IAG’s new pilot must restore the identity of BA.”

The FT concluded of Walsh: “There will be few tears shed at his departure. He restored BA to profitability. Investors have benefitted, trebling their money since Walsh took over.

“[But] there has been less to cheer about by other stakeholders, notably passengers. BA’s service has suffered as costs have been cut . . . BA’s reputation is not what it was.”

Elsewhere the same newspaper noted Walsh will be remembered for turning BA into “Bryanair” and many frequent flyers and trades unionists “will be glad to see Walsh go”.

Key events showed his character

Walsh is an engaging character who can be charming and funny, although you would not want to get on the wrong side of him.

He started in the industry as a pilot trainee at Aer Lingus, graduated to flying Boeing 737s and became a captain, then took a business degree and joined management, rising to become the airline’s chief operating officer and, from 2001, chief executive.

The Irish carrier was in financial trouble, losing out across the board to Ryanair

Walsh slashed thousands of jobs in the course of restructuring the airline, acquiring the nickname Slasher Walsh. But Aer LIngus turned a profit in 2004.

In 2005 he took over at BA and established International Airlines Group (IAG) through the £5-billion merger of BA and Iberia in 2011.

Two key events in Walsh’s tenure at BA demonstrated his character.

His strong will and decisiveness saw him take to the sky during the volcanic ash crisis in 2010, defying the days-long grounding of aircraft across Europe in order to demonstrate it was safe to fly.

Walsh dismissed the ash grounding as “a gross over reaction” and his action was instrumental in persuading the CAA and Europe’s regulators to relax it.

The same decisiveness was on show when BA moved into Heathrow’s new Terminal 5 in March 2008 despite fears the facilities were not ready. A catalogue of problems saw BA cancel 500 flights and misplace more than 23,000 bags in the opening days.

BA and the airport’s operator, it later transpired, had not even met to discuss operations in advance of the opening.

An inquiry by MPs found “serious failings” on the part of BA, with the chair of the Parliamentary committee calling the opening “an occasion of national embarrassment”.

Walsh revealed a combination of IT problems and lack of testing played a large part. Unfortunately, IT issues continue to dog BA.

Twin legacy

Walsh was awarded the Travel Weekly Globe Award for Outstanding Achievement in 2013. The award citation noted he is “one of the most recognisable faces in the industry”.

“He nursed his company through the fall-out from the worst recession in aviation history and led the sector back into the skies following the longest shut-down of civilian airspace since the Second World War.

But Walsh’s legacy is mixed.

On the plus side, BA and IAG under Walsh made record profits. IAG reported a post-tax profit of €2.9 billion the last full financial year – and it and BA only turned in a loss in two of the last 10 years.

Walsh ran BA, remember, through 2007 (the year of record oil prices), 2008 (the financial crash) and 2009 (recession). No wonder he is popular with investors.

The group has spent €4.1 billion on shareholder dividends and share buy-backs since 2015.

The IAG group he assembled has proved an undoubted success. BA merged with the loss-making Iberia in 2011. By 2014, Iberia was making a profit.

Walsh added Vueling in 2013 and Aer Lingus, for €1.5 billion, in 2015 – then set up LEVEL in 2017.

He flirted with adding Norwegian Air, but dropped the idea when Norwegian sought a price he was unwilling to pay. Walsh departs with a €1 billion deal for Spanish carrier Air Europa awaiting regulatory clearance – a deal which will enhance IAG’s position at Madrid, across the Atlantic and in Latin America.

Walsh also established a transatlantic joint venture with American Airlines and Iberia in 2008. The deal with American had been discussed for almost a decade but Walsh completed it.

Another JV with Japan Airlines extended the concept to the Pacific. In December, Walsh signed a joint business agreement with China Southern Airlines.

Decline in BA’s standing

Yet there has been a serious downside to his success, with an undoubted decline in BA’s reputation and standing.

Part of the reason has been a succession of labour disputes – a near two-year series of strikes by BA cabin crew between 2009 and 2011, another cabin crew dispute in 2017, the first-ever strike by BA pilots in September 2019, and strikes at Iberia in 2011, 2012 and 2013.

Walsh has appeared keener to win disputes than to settle them.

It was striking how speedily the BA cabin crew strikes were resolved in 2011 after Walsh moved to run IAG and his successor Keith Williams stepped in to handle negotiations.

There have been repeated signs of a failure to invest adequately – one illustration being the age of BA’s fleet and, another, the succession of IT problems the carrier has suffered.

Almost half BA’s fleet is 15 or more years old, with few aircraft aged between five and 10 years because for so long the airline did not order any.

Only in February last year did IAG announce the purchase of 18 Boeing 777s, and options on another 24, to replace its fleet of 747s. These have an average age of 23 but will not be fully retired until the mid-2020s.

There is a general feeling among aviation analysts that, to quote one, “Willie did Alex [Cruz] no favours.”

He leaves his IAG successor Gallego with the issue of Brexit to contend with.

EU rules require European carriers to be 50% EU-owned and controlled if they are to enjoy the freedom of Europe’s open skies.

IAG’s strategy appears to be to emphasise that its individual airlines are domestically owned, Iberia in Spain, Aer Lingus in Ireland etc. It’s true that a majority of each airline’s voting rights is held in its home country

But a senior EU official said in January last year: “I can’t see how it can be a solution.”

Walsh has repeatedly dismissed concerns about the issue. When asked how IAG plans to persuade regulators that it has complied with the rules he simply said at one point: “Magic.”

In March 2019, European transport commissioner Violeta Bulc described the airline group as “gambling”. In 2018 she signalled she would not bend the rules to help IAG comply.

Gallego and his compatriot Cruz will need to address the reputational damage to BA, which has reached a stage where, in September, Financial Times columnist and one-time Downing Street advisor Camilla Cavendish suggested BA “looks set to become a business school case study of reputational damage”.

He will also have to integrate Spanish carrier Air Europa into the group, assuming Europe’s competition authorities allow it to proceed without too many remedies.

According to an unnamed IAG shareholder, Gallego “has a slightly gentler negotiation style”. He may need it.

It’s hard to escape the conclusion that Cruz has been passed over for the top role, having once appeared Walsh’s designated successor, and BA’s fallen standing may be the reason.

But there was a feeling that Walsh never truly relinquished control of BA. Now finally he will.