BA Atlantic routes boost profits

Strong demand on transatlantic routes boosted profits at British Airways owner International Airlines Group, despite another jump in fuel costs.

The company – formed from BA’s merger with Iberia last year – saw profits jump to 503 million euros (£426m) from 84 million euros a year earlier after passenger revenues increased 11% to 13.6 billion euros.

IAG said fuel costs were up by nearly 30 per cent in 2011 to 5.1 billion euros and that at current prices it expects the bill will rise this year by a further one billion euros.

It also warned that BA’s performance this summer may be affected by the Olympics, with past experience suggesting that demand could be dampened.

The group added that ongoing developments in the eurozone will be a major factor in its growth this year, especially for its Iberia operation.

However, it said demand in London remained strong, with the encouraging trends seen in the second half of last year continuing in long-haul premium cabins, particularly on North Atlantic routes.

British Airways paid almost £500m in air passenger duty last year and IAG warned that a further 8 per cent rise due in April will limit the number of jobs it will be able to create this year.

The airline group warned that higher fuel costs and weaker European markets will mean a reduction in results for the first half of this year, although it expects the pressures to reduce as 2012 progresses.

Despite the warning, shares in the group were 3 per cent higher in London today.

Hargreaves Lansdown equity analyst Keith Bowman said the early trends for the combined business were positive despite numerous challenges.

“Revenues per passenger are up, whilst non-fuel related costs are down. Exposure to a recovering US economy is considerable, whilst outdated work practices at Iberia are being addressed.

“On the downside, fuel costs continue to take their toll, denting expected performance in the first half of 2012.”

IAG said it remained hopeful that it will secure regulatory approval for its deal to buy BMI from Lufthansa. The move should enable it to grow at Heathrow by launching new long-haul routes and support its short-haul network.