New airline IAG flies into profit

May 6, 2011

, LONDON, May 6 – International Airlines Group, recently formed from the merger of British Airways and Spanish carrier Iberia, announced a first-quarter net profit on Friday of 33 million euros ($48 million).

The figure for the three months to March 31 compared with an estimated net loss of 243 million euros in the first quarter of 2010, IAG said in a results statement.

IAG, which was formed only in January, posted a profit after increasing capacity and slashing most costs. However it faced a 31-percent rise in fuel charges during the reporting period.

The carrier said it expected "significant growth in operating profit this year" even though Japan\’s natural disaster and unrest in north Africa and the Middle East would hit earnings by up to 100 million euros.

"The continued focus on cost control has been achieved while we have seen some measured increases in capacity," IAG chief executive Willie Walsh said in the earnings release.

"We have been able to increase capacity without additional aircraft and employees," added the former chief executive of BA.

IAG also said on Friday that group revenue jumped 15 percent to 3.636 billion euros in the first quarter. Pre-tax losses narrowed to 47 million euros from 273 million euros.

"We expect significant growth in operating profit this year, with improvements in both our unit revenue and unit cost performance versus 2010 and are on track to reach our synergy targets," IAG said.

"Our long haul business is stable, with strength in the premium sector, but the short haul European market remains highly competitive.

"We expect the ongoing impact of events in Japan and North Africa/Middle East to have a negative impact on operating profit for the full year of 90 million to 100 million euros," the company added.

Shares in IAG were up 2.8 percent at 252.90 pence in afternoon trade on London\’s benchmark FTSE 100 index, which was down one third of a percent.

"The newly formed airline has made a promising start," said Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers.

"Management has quickly moved to cut controllable non-fuel costs, while the improvement in the global economy has played its part in boosting both higher paying business passengers and cargo traffic.

"Nonetheless, the challenges ahead are still numerous. Fuel costs remain elevated, acts of terrorism have raised the cost of security, whilst geopolitical tensions and upheaval in the Middle East provide uncertainty over safety and passengers\’ desire to travel.

"Furthermore, natural disasters such as the Japanese earthquake raise ongoing uncertainties, whilst competition from the low cost airlines continues to ratchet up, with easyJet now looking to court business passengers," he added.

Carrying about 60 million passengers a year, IAG is Europe\’s second biggest airline by market value behind Lufthansa of Germany.

British Airways holds 55 percent of IAG, while Iberia has the remaining 45 percent. A tie-up allows the two carriers to also catch up with Air France-KLM.

BA is set to benefit from Iberia\’s strong presence in Latin America, while the Spanish airline will gain from the British carrier\’s strength in North America and Asia.

Under the new umbrella group, British Airways and Iberia are retaining their current operations and individual brands. They sought to merge as the global economic downturn and the rise of low-cost airlines resulted in steep losses for traditional carriers.

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