IAG reverses Iberia trend as Q2 profits soar - UPDATE

2nd Aug 2013 07:51

A high-flying second quarter from British Airways couldn't help parent company International Consolidated Airlines reporting a doubling of first half losses. The FTSE 100 group, known as IAG, made a second quarter operating profit of €245m but costs of restructuring of the group's other main operating business, Iberia, have held back headline performance for the six months to June 30th.Chief Executive Willie Walsh said several factors have contributed to the quarterly improvement, with total revenue up 3.4% and costs down 2% from a 3.9% drop in fuel costs and lower staff costs from Iberia.Iberia reversed a negative trend of the last 11 quarters as reduced staffing costs helped slash losses from €93m last year to €35m. Capacity was reduced at Iberia in the first quarter due to industrial action in Spain, but wage costs began to fall in the second quarter thanks to salary reduction proposals pushed through with staff. Walsh reported that the first step in the restructuring has seen nearly 1,700 employees leave Iberia so far with remaining staff accepting salary reductions of between 18% and 11%. British Airways lifted operating profit from €94m to €247m, thanks to a strong London market and transatlantic traffic, tight cost control and the tapering off off costs from the integration of bmi.The group acquired Spanish low-cost flyer Vueling in April, which contributed an operating profit of €27m.Revenue for the half year was up 2.1% to €8.7m despite an adverse 1.7% currency impact.The group has a bumper cash pile of €3.6bn at the period end, including €549m at Vueling, but the board continue to eschew the payment of a dividend.Analysts at broker Jefferies were much encouraged after the results and speaking to management, which has helped elaborate the positive developments to date and future growth drivers, "which are now showing on several fronts". "Unit revenues and cost progress are gently encouraging, as is progress with Iberia and Vueling. We see a clear roadmap to higher return on capital, and therefore a higher valuation, which we expect to emerge as restructuring benefits develop."The outlook was seen as "gently positive". Jefferies noted of the Iberia restructuring update that management expect the headcount reduction of 1,865 should be ahead of the the mediation agreement for at least 3,141 employee redundancies by end-2013, "implying higher savings for 2014". Shares in IAG were up 4.75% to 311.5p at 12:15 on Friday.OH