When Luis Gallego was handed the top job at Spanish airline Iberia in 2013, he inherited a “disaster”. The airline was losing €1mn a day, landing just over half its planes on time, and customers were in revolt.
Two years later, Iberia was profitable and the most punctual airline in Europe, one of the most striking turnarounds in recent corporate European history. It was enough to land Gallego the top job at its owner, International Airlines Group, which owns five carriers.
Gallego endured years of crisis management after taking over in 2020. But as pandemic disruption gives way to a travel boom, he is grasping the more delicate challenge of reshaping some of the group’s airlines for a post-Covid world, including the most high profile of all: British Airways.
Now based at IAG’s headquarters on the outskirts of London’s Heathrow airport, the 56-year-old chief executive reflects on transformation at “flag carrier” airlines like BA or Iberia, where staff can be resistant to change and customers emotionally invested in what were once national champions.
“People in Spain see Iberia as something that is theirs in some way. And here people talk about BA because they like BA. And they associate BA with a country, with British culture. And what they want is to have a company that they can be proud of,” he says.
There may be some way to go on that front. Despite long being the engine room of IAG’s profits, which hit a record €3.5bn last year, BA has had a rocky recovery from the pandemic. It became a byword for declining standards following cuts before Covid, including now partially reversed removals of free food and drink on shorter flights.
IT outages and strikes, then cancellations and delays caused by creaking technology and operational complexity, added to the sense of an airline that had lost its lustre.
“I think everyone in BA understands that BA operates in one of the best hubs in the world, they have one of the best customer bases. And we can do it much better,” Gallego says.
One of his biggest decisions was to clear a £7bn investment into BA. The aim is to reduce cancellations by fixing the strained Heathrow operation, including hiring more staff and improving scheduling and maintenance, while investing in new aircraft and infrastructure.
Gallego has thrown support behind BA chief executive Sean Doyle, whom he appointed within weeks of taking over at IAG to lead the transformation.
“We are investing a lot in BA because we consider that there is a future opportunity . . . We want BA to be the best airline in the world,” he says.
But he concedes weary passengers will have to wait to see results. The full replacement of the airline’s business class products with private “suites” is now about 60 per cent complete and due to be finished in 2026.
Iberia was a politically sensitive and contentious restructuring, which involved shedding thousands of jobs, culling management and revamping branding and fleet. Gallego sees the job at BA as less drastic, with efficiencies already baked in and operational performance improving.
But what links the “transformations”, as Gallego puts it, is the need to persuade long-serving and sceptical staff of the urgency for change.
“In the case of Iberia, even when we were losing €1mn per day, you had some people that were saying, ‘We don’t need to change. We are an old flag carrier in some way, and somebody is going to rescue me or something is going to happen.’ We said, ‘No, no — you need to rescue yourself, you need to change,’” Gallego says.
“When you are in a legacy carrier . . . you consider that you are the best in some way. It is difficult that some people don’t want to challenge themselves. But when you see what others are doing, you see that you have a lot of room for improvement.”
Many of the changes at BA are focused on improving how staff work, including building smaller teams of no more than 30 people, making sure each employee has a direct reporting line and better training for managers.
The aviation industry is littered with colourful and publicity-hungry chief executives, from Ryanair’s Michael O’Leary to Gallego’s predecessor at IAG, Willie Walsh. But Gallego cuts an understated figure.
He had expected to follow his father into the quiet world of aerospace engineering after a childhood spent nurturing a love of “maths, physics and engineering” in the industrial city of Getafe, the heartland of Spanish aviation and home to one of Europe’s biggest aircraft factories.
But he rapidly rose through the ranks of Spanish aviation, starting with military service as an aircraft engineer, before management at regional airlines, which culminated in joining Iberia.
He considers his operational background an advantage, as it has deepened his understanding of a complex industry: “When you understand the business you have more knowledge of the problems.”
His predecessor, Walsh, formed IAG through the 2011 merger between British Airways and Iberia. The group expanded to buy Vueling and Aer Lingus, then launched Level in 2017.
Walsh was lauded by shareholders for steering the group into a highly efficient and profitable operation, a rarity in global aviation. But he faced criticism from others — notably customers and unions — for seemingly prioritising shareholder returns over customer experience and quality.
Gallego agrees with Walsh that the “secret sauce” of the business is a strategy of only allocating capital spending where it will generate a return. He believes all his airlines need to transform and become more efficient to help IAG return to pre-Covid margins in an era of high inflation.
But he also says efficiencies must be balanced by investment to keep customers happy. “In the end, when you invest, you can generate more margins . . . We want stronger airlines, stronger brands.”
Gallego describes IAG as an “active holding company”, which intervenes where necessary but allows each airline to set its own strategy and keep its branding and identity, to focus on discrete customer bases and markets. All IAG airline chief executives sit under Gallego on the company’s management committee, which meets weekly, and are responsible for their own financial performance and building the case for investment
Gallego admits he sometimes finds himself wondering if he might have taken a different individual decision to airline leaders. But he believes it is crucial to give them autonomy. “I had the freedom to do what I considered was convenient for Iberia . . . they need to have the freedom to take decisions.”
Although Gallego took up the helm at IAG in September 2020 it was not until January last year that he was confident to look to the future with a strategic review.
Though willing to consider wholesale changes, he has stuck with the existing strategy: focus on lucrative cross-Atlantic routes and European flying, alongside expansion of asset-light parts of the business, such as a loyalty operation including BA’s Avios frequent-flyer points programme.
“We said, ‘If we need to change everything, we change everything.’ But the conclusion was that we have the right model,” he says. The company has also invested to lower its environmental impact, including $1bn in cleaner fuels.
Still, he would like to pick up some more airlines if he can.
IAG last week gave up on a long-running effort to buy Spain’s Air Europa, after failing to persuade EU regulators the deal would not harm competition.
The idea was to expand Madrid airport into another large European hub and grow its share of the Latin American market, and Gallego says IAG has a department “scanning the market” for other airlines to buy.
He is interested in Portugal’s TAP, which is set to be privatised, or even a South American airline. Ultimately, Gallego remains convinced consolidation is the best way to build a more stable industry, particularly given growing environmental costs.
“I always say that we could do the transformation of Iberia because we had a group. If you don’t have a strong group, it is impossible to do the transformation of an airline.”
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