IAG to restructure Iberia, will miss full-year profit target

Iberia and British Airways (BA) owner International Consolidated Airlines Group, otherwise known as IAG, said it would fail to achieve its 'break-even' operating target this year after it registered a steep loss in the six months to June 30th as fuel costs jumped and losses at its Spanish airline increased.

The company reported a half-year pre-tax loss of €390m, down from a profit of €39m the year before, as fuel costs gained 25% from €2,378m to €2,973m.

The period in review was plagued by "significant volatility" in fuel prices and foreign exchange rates whilst the economic outlook in Europe has declined, meaning that continental European demand has been lower than expected at the start of the year.

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Nevertheless, half-year revenue gained 9.8% from €7,773m to €8,532m, as available seat kilometres (ASK) increased by 2.6% and revenue passenger kilometres (RPK) rose 5.2%.

"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," said Chief Executive Willie Walsh.

The company said that a number of factors have improved over the past three months, but while the underlying BA trading conditions remain "firm" and the bmi integration is on track, "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 group said.

Walsh revealed that it is now undergoing a restructuring of its struggling Spanish airline, Iberia: "Iberia's problems are deep and structural and the economic environment reinforces the need for permanent structural change." The restructuring will likely include short-term downsizing and network reshaping which will probably lead to some redundancies: "Inevitably, we will not be able to avoid job losses as part of this process."

Net debt increased by 13.9% over the period to €1,308m, while cash and interest bearing deposits rose 7.4% to €4,013m.

In a separate statement, IAG said that group traffic in RPK rose 5.1% year-on-year in July, up 2.1% on a like-for-like (LFL)basis, while group capacity measured in ASK increased by 5.1% (up 1.8% LFL).

BC