IAG warns on results for first half of 2012

INTERNATIONAL AIRLINES Group (IAG) warned its results in the first half of 2012 were set to deteriorate because of high fuel costs, weak European markets and industrial unrest.

IAG, formed through the merger of British Airways and Iberia last year, claimed a strong performance in 2011 even though its Spanish subsidiary recorded an operating loss.

The parent company reported an operating profit of €407 million for the year to December 31st last on a pro-forma basis, up 81 per cent compared with 2010. Revenue rose 10.4 per cent to €16.3 billion.

BA and Iberia recorded starkly different performances, however. BA, benefiting from robust demand for transatlantic travel, reported an operating profit of €592 million for 2011, while Iberia, buffeted by the euro-zone crisis and strong competition, recorded a loss of €61 million.

Commenting on the outlook for 2012, IAG said: “Higher fuel costs, weaker European markets and labour unrest will imply, for the first part of the year, a reduction in operating results when compared with the first half of last year. We expect the year-over-year cost pressures to reduce . . . through the second half of the year.”

IAG added that strikes by Iberia pilots in response to plans to launch Iberia Express, a new low-cost carrier in Spain, were costing the company about €3 million during each day of industrial unrest.

But Willie Walsh, IAG’s chief executive, signalled his determination to push through the Iberia Express plans.

“The launch of Iberia Express in late March, alongside the restructuring of its network and hub, will enable Iberia to become more . . . cost effective,” he said.

In spite of the economic uncertainty, IAG is witnessing strong demand for air travel out of London, particularly from passengers travelling business or first class on north Atlantic routes. But IAG anticipates that demand for BA’s services could reduce during London’s hosting of the Olympic Games in July and August.

Douglas McNeill, analyst at Charles Stanley, said IAG’s inaugural year had been a “good one, with a substantial increase in earnings”. – Copyright The Financial Times Limited 2012