IAG Discount Arm Vueling to Tap Premium Market Via Wi-Fi Rollout

British Airways (IAG) sister unit Vueling SA will add onboard Wi-Fi to its planes as early as next month in a bid to lure more business passengers and set itself apart from low-cost rivals Ryanair Holdings Plc (RYA) and EasyJet Plc. (EZJ)

Barcelona-based Vueling is also examining two or three other features aimed at tapping corporate travel and not usually offered by discount operators as it adds more than 50 routes in 2014, Chief Executive Officer Alex Cruz said in an interview.

Vueling delivered a 25 percent operating margin in the third quarter, almost double the figure at BA, propelling parent IAG SA to a 690 million-euro ($925 million) operating profit. Cruz said he’s seeking a balance between targeting business clients who account for almost 40 percent of ticket sales and the need to keep a lid on expenses, with the Wi-Fi plan secured through a deal with an as yet unspecified provider that took more than two years to seal and comes at no cost to Vueling.

“It’s so easy to ‘premium-ize’ by spending money, but if we were to do it that would be the beginning of our death sentence,” the CEO said in London. “The short- and medium-haul business is a nasty business with a competitive environment, so you cannot lose sight of cost.”

Providing in-flight bandwidth is otherwise prohibitive, even as a paid-for service, Cruz said, adding that his airline will be similarly patient in pursuing other initiatives to be sure it maintains unit costs lower than rivals such as EasyJet.

Insulated

The airline has set up a premium product index to measure its performance as many full-service carriers water down their business offering on unprofitable short-haul routes, Cruz said, pledging to provide “the best business class in Europe.”

Vueling’s business focus has also helped insulate it from issues at carriers such as Ryanair, which has predicted a first annual profit decline in five years as fares slide. With Wizz Air Ltd., based in Budapest, Ryanair is an ultra-low-cost operator appealing to a different clientele, according to Cruz.

Vueling is even seeing a mild upturn in Spanish activity as the country’s economy shows modest gains, he said.

The carrier’s management aims to conclude talks with pilots on a new labor agreement in coming weeks, with negotiations so far “constructive,” according to Cruz, who said the labor deal will seek to build in contingencies should growth stall.

While annual increases in supplier and pilot costs have been offset through other efficiency measures in the past five years, maintaining that is “becoming a huge effort,” he said.

Product upgrades will help lure passengers beyond a Barcelona base where Vueling is nearing the limits of the market with almost 120 routes. New destinations from the Spanish city announced yesterday included Krakow in Poland, Donetsk and Kharkov in the Ukraine and Kaliningrad and Kazan in Russia.

Willie Walsh, CEO of IAG, as International Consolidated Airlines Group SA is known, said Nov. 8 that Vueling can expect “further opportunities.” Cruz said growth may include Germany and Scandinavia, though southern Europe will remain a focus.

Madrid, home to Iberia, IAG’s main Spanish unit, and London Gatwick, where BA’S point-to-point routes are concentrated, will not at the moment become bases, Cruz said.

To contact the reporters on this story: Robert Wall in London at rwall6@bloomberg.net; Christopher Jasper in London at cjasper@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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