Iberia recovery pushes BA owner back into black

Georgia May Jagger was the face of BA last month as it rolled out its A380s for the long haul to Johannesburg. Picture: Getty
Georgia May Jagger was the face of BA last month as it rolled out its A380s for the long haul to Johannesburg. Picture: Getty
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British Airways’ parent company is forecast to cruise back to a full-year profit as the restructuring at its troubled Spanish arm begins to bear fruit.

International Airlines Group (IAG), formed by the 2011 merger of BA and Iberia, saw its shares soar 6.7 per cent, or 19.9p, to 317p – a record high – yesterday as the turnaround helped the carrier move out of the red in the second quarter.

As well as improved profits at BA, aided by strong transatlantic traffic, the turnaround was boosted by the overhaul at Iberia, which has shed almost 1,700 staff and cut salaries for flight and cabin crew by 18 per cent.

IAG chief executive Willie Walsh said: “This is the first step in the restructuring but it is already bearing fruit.”

Losses at Iberia, Europe’s biggest carrier to Latin America, fell to €35 million (£30.5m) in the three months to 30 June, down from €93m for the same period last year, “reversing the negative trend of the last 11 quarters”, Walsh said.

He added: “Iberia has started to turn the corner. It is starting to see the benefits of cuts to costs and capacity but there’s still a long way to go.”

IAG plans to take the total number of job losses at the Madrid-based carrier to more than 3,000 next year as part of plans to focus on long-haul routes, which it believes can become profitable. Spanish low-cost airline Vueling, which the group bought earlier this year, will concentrate on shorter services.

Vueling delivered an operating profit of €27m, while earnings at BA soared to €247m, from €94m a year ago, as the London market and transatlantic traffic remained strong.

Combined with a 3.9 per cent dip in fuel costs, that helped the overall group deliver an operating profit of €245m for the second quarter, well ahead of analysts’ forecasts of €165m and in sharp contrast to the €4m loss it booked a year ago. Cantor analyst Robin Byde said the results represented “a good turnaround at Iberia supported by positive trading at BA”.

German rival Lufthansa, which is also in the midst of a revamp that includes 3,500 job cuts, yesterday said its second-quarter operating profits dropped 27 per cent to €431m, falling short of the €599m expected by analysts.

Stephen Furlong, transport analyst at Davy Research, said: “We’re seeing the combined effect of a strong performance from BA and the early impact of the radical restructuring at Iberia. This will focus investors’ minds on IAG’s profit targets, which, judging by the progress being made at Iberia, look doable.”

IAG said it could not provide guidance for its full-year operating profit because it was waiting for shareholder approval on its fleet replacement orders, which could have an impact on earnings, but it expects capacity to rise 5.2 per cent, lifted by the Vueling acquisition. Walsh reiterated his view that IAG would deliver an operating profit of €1.6 billion by 2015.

City consensus for 2013 profit is about €503.5m, compared with a loss of €23m in 2012.