IAG cautious on year ahead after 2011

International Airlines Group (IAG), the owner of British Airways and Iberia, said its underperforming Spanish unit and high fuel costs would dent earnings this year, after it reported a forecast-beating rise in 2011 profit. “BA is making money and Iberia is losing money. The Spanish economy is weak and operating costs at Iberia are too high, unacceptably so, but this is being tackled,” chief executive Willie Walsh told reporters on Wednesday. “The challenges Iberia faces are similar challenges BA faced, so we know the problems we face but the Spanish economy will continue to be weak for some time.” IAG, Europe’s fourth-biggest airline group by market value, said 2011 operating profit doubled to 485 million euros ($651 million), helped by higher than expected cost savings from the BA-Iberia merger and strong growth in premium traffic. The company was expected to report a 2011 operating profit of 470 million euros, according to a Thomson Reuters poll. IAG said profit in the final three months of 2011 grew well but that the outlook was uncertain due to soaring fuel costs and financial uncertainty in the euro zone, especially in Spain. European airlines are struggling as high fuel prices, weak consumer confidence in Europe and additional charges from an EU emissions trading scheme conspire to make 2012 tough. Germany’s Lufthansa and Air France-KLM have embarked on cost cutting programmes, trimmed profit forecasts and slashed plans to expand capacity this year after results were battered by high fuel costs. The BA and Iberia parent said its fuel costs rose nearly a third in 2011 to just over 5 billion euros but that it managed to cut non-fuel costs by 5.6 per cent. “Higher fuel costs, weaker European markets and labour unrest will imply, for the first part of the year, a reduction in operating results when compared with the first half of last year,” Walsh said. BA and Iberia sealed an $8 billion merger in 2010, a move that helped the pair stem huge losses following the worst industry downturn in decades. 4 IAG, whose 2011 revenues rose 10.4 per cent to 16.3 billion euros, said it achieved cost and revenue synergies of 74 million in 2011, 64 million more than targeted, in its first full year since the merger.