British Airways owner IAG bullish on profit update

Airliner set to post surpisingly large profits. Picture: PA

International Airlines Group (IAG) chief executive Willie Walsh sought to end speculation about the outlook for next year, saying the company had already dealt with many of the challenges European rivals are now facing and was better placed in faster-growing economies. IAG, which also operates the Spanish carriers Iberia and Vueling, upgraded its guidance at a time when Air France-KLM and Germany’s Lufthansa have just issued profit warnings.

IAG reported underlying profits of €900 million (£707m) for the crucial summer quarter to 30 September, a rise of €210m on a year earlier.

For the whole of 2014, it now expects an improvement in profits of between €550m and €600m, up from guidance in early August for a rise of about €500m.

The group has around 430 aircraft and employs more than 60,000 people. A restructuring programme at the previously loss-making Iberia has seen 2,500 staff leave under a voluntary redundancy programme, while salaries have been cut.

IAG said staff costs fell 8.4 per cent at constant currency rates while fuel costs were also lower as a result of lower oil prices. Passenger revenues were 9.2 per cent higher at €13.4 billion.

Another factor in BA’s improvement has been the cost benefit achieved from the performance of its new Airbus A380 and Boeing 787 aircraft. Air France-KLM and Lufthansa have blamed their warnings on overcapacity on US routes and competition from Middle Eastern carriers.

But BA made an operating profit of €607.3m in the period, compared to €477m last year after it grew capacity and maintained its focus on cost control.

Iberia’s operating profit increased to €162m from €74m last year.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: “Cost reduction at the company remains central. More fuel efficient aircraft are playing their part, with restructuring initiatives and resulting increased staff productivity at Iberia again contributing.”

He added that expanded capacity at British Airways and its exposure to the stronger US economy was also assisting the company’s progress.

Analysts at Jefferies said they believed IAG would give higher targets at its investor update on 7 November when the group may also announce that it will pay its first dividend since British Airways and Iberia merged in 2011.

“IAG continues to distinguish itself, strategically and structurally, translating into superior operational/financial performance. Amongst flag carriers, IAG is the only show in town,” Jefferies, who rate the stock a “buy”, said.

Walsh also said the Ebola crisis in West Africa, which some experts said could dampen demand for air travel, was not affecting the company.

Shares closed up 18.5p at 409p.

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