Broker snap: IAG looking for cost savings in Vueling deal, says Credit Suisse

8th Nov 2012 16:14

Credit Suisse has weighed in on the decision by International Airlines Group (IAG), the parent company of British Airways and Iberia, to launch an offer for the remaining stake of low-cost airline Vueling. A PLAN B FOR IBERIA EXPRESSAnalysts, who have a 'neutral' rating on IAG with a price target of 140p, believe that the decision could be part of an attempt to reduce Iberia's structural costs. This would be a "plan B" for the Spanish airline after the creation of Iberia Express spurred conflict with pilots.The Swiss broker explained that Iberia needs to save €700m in structural costs in order to reach its guidance for 2015. Iberia also needs Iberia Express to expand in order to control all of the company's short-haul flights and eradicate €200-300m in losses tied to that unit, Credit Suisse explains. Iberia would also have to eliminate price discounts in order to increase returns for long-haul flights because competition in Latin American flights has increased.IAG will present earnings on Friday and that the Vueling acquisition, if successful, should be considered by investors under a context of potential cost savings, the broker said.IAG had acknowledged on Wednesday that the board was considering the purchase. The company today explained that it plans to buy the 54% percent stake it does not own of Vueling for €7 per share, which includes a 27.97% premium over the stock's prior closing price.Shares of Vueling had been suspending from trading all morning before re-opening with a 25.23% gain to €6.85. MG