Iberia loss wipes out BA profit

International Airlines Group swung to a €390m pre-tax loss in the six months ended 30 June 2012 from a €39m profit a year ago.

Revenue grew by 9.8% to €8.5bn, but costs were up 14.3% at €8.8bn, including a 25% jump in fuel costs to nearly €3bn, resulting in an operating loss of €253m before exceptional items, versus a €88m profit last time.

The restructuring of bmi, which IAG acquired from Lufthansa in April, accounted for most of the €38m exceptional items incurred.

British Airways made a first half operating profit after exceptional items of €13m, but Iberia reported a €263m loss.

For the second quarter alone IAG recorded a €4m operating loss before exceptional items, including €50m of bmi losses, on revenue up 11.5% at €4.6bn.

The group ended the first half with cash of €4bn, up €278m from the end of 2011. Group net debt came to €1.3bn, up €160m over the same period.

Willie Walsh, IAG chief executive, 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. We are currently working on a restructuring plan for Iberia which we anticipate will be finalised by the end of September.

‘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.’

Walsh added that Iberia’s new ‘cost effective subsidiary’, Iberia Express, had made an ‘excellent start’, turning a profit in its third full month of operation in June.

IAG had been targeting a breakeven operating result for 2012 after the impact of restructuring costs and the short-term earnings drag from bmi, however, ‘in the light of the Spanish macro headwind, we now expect to make a small operating loss’, Walsh said.

Airport departure taxes at Iberia’s main Madrid and Barcelona bases were doubled on 1 July, but the airline will not pass on the increase to passengers who bought tickets before then, which will result in a loss of €20m to IAG in the second half of 2012.

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