Oil prices cast shadow over IAG profit target

A British Airways freight aircraft prepares to take off yesterday with relief supplies for the Philippines. Picture: Getty

International Airlines Group, which had previously set a target of €1.6bn, said the better financial performance would come from growth at British Airways and a recovery at struggling Spanish flag-carrier, Iberia.

IAG said the improvement would also be aided by efficiencies linked to integrating its budget Spanish airline, Vueling, which it took control of earlier this year.

However, IAG’s shares closed down 10.8p, or just under 3 per cent, at 362.2p as the stock market digested the surge in oil prices in the wake of reassuring comments by the incoming boss of the US Federal Reserve.

Brent crude rose 0.4 per cent in London to more than $108 after Janet Yellen, who takes over from Ben Bernanke at the end of January, said the Fed had “more work to do” to help the US economy – suggesting no early scaling back of the American asset purchase programme.

Iberia became unprofitable in all markets, including long-haul, following its merger with BA in 2011. IAG is restructuring the carrier, which was hit by competition from low-cost airlines and high-speed trains during five years of harsh economic conditions in Spain.

In a statement today, IAG said Iberia’s recovery plan was “on track with improvement expected”.

One analyst commented: “British Airways went down the route Iberia is now before they merged to form IAG.

“And that is a case of significant redundancies, trying to keep a cap on staff wages, and offering more competitive prices in a bid to take on the budget airlines, in particular.

“The profits target upgrade would suggest Willie Walsh [IAG’s chief executive] thinks the medicine is working, and will contribute to better prospects two years out.”

BA has been performing much better in the past year, and the parent company today increased the airline’s 2015 operating profit target to £1.3bn from £1.1bn.

IAG said in the statement that it was now heading for a business model that could sustain organic growth rates of between 2 and 3 per cent [excluding Vueling] beyond 2015.

It added that it was aiming for earnings per share of €0.54 by 2015 and capital expenditure of €2-€2.2bn a year.

IAG said last week it was targeting 2013 operating profit of about €740m, compared with an operating loss of €68m in 2012, after Q3 operating profit more than doubled.