Iberia drags BA parent into loss

‘Deep, structural problems’ at Iberia dragged International Airlines Group into a half year operating loss of €253 million despite British Airways being in profit.

The IAG pre-tax loss came in at €390 million against a profit of €39 million in the same period last year.

The operating loss followed a profit of €88 million in the first half of 2011. The Spanish carrier contributed an operating loss of €263 million while BA made a profit of €13 million.

This led IAG to revise forecasts and predict an operating loss from the year instead of breaking even as it had previously hoped.

IAG saw fuel costs in the half year rise by 25% to almost €3 billion.

Chief executive Willie Walsh said: “There remains a stark difference in the performance of our subsidiaries. British Airways made an operating profit despite rising fuel prices while Iberia’s losses deepened.

“Iberia’s problems are deep and structural and the economic environment reinforces the need for permanent structural change.”

IAG is to reveal the outcome of a restructuring plan and job cuts at Iberia by the end of September.

Walsh said: “This is likely to include short term downsizing, network reshaping to deliver higher unit revenues and a re-evaluation of all aspects of the business to deliver competitive costs and service to enable long-term profitable growth.

“Inevitably, we will not be able to avoid job losses as part of this process.”

He described the performance of low cost start-up Iberia Express as “excellent” having achieved profitability in its third month of operation in June.

Walsh said there would continue to be a focus on “stringent” cost control across the group. Restructuring costs of BMI, which came in at almost €38 million, and the airline’s losses were in line with expectations.

“The integration of BMI mainline into British Airways is going well with completion due by the year end,” Walsh said.

“A number of factors have improved over the past three months. Underlying British Airways trading conditions remain firm and BMI integration is on track, but any benefit from an easing of fuel prices has been more than offset by the deterioration in Spanish economic conditions.

“We were previously targeting a break-even operating result this year, after the impact of restructuring costs and the short-term earnings drag from the BMI acquisition.

“However, in the light of the Spanish macro headwind, we now expect to make a small operating loss in 2012. The Iberia restructuring plan could lead to further restructuring costs in the latter part of the year.”

IAG premium traffic for the July grew by 1.5% over the same month last year, with 5.6% growth in non-premium traffic.

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