IAG bucks industry trend with profit swing

International Airlines Group, formed by the merger of BA and Iberia, defied the gloom in the airline sector by swinging to a profit in the first half and predicting full-year earnings growth.

Europe's second-biggest airline group by value behind Lufthansa said on Friday pretax profit in the six months to the end of June rose to €39 million ($55.7m) from a loss of €419m on revenues 17.9 per cent higher at €7.8 billion.

IAG's Chief Executive Willie Walsh told reporters he expected the group to deliver "significant growth in operating profit this year" despite soaring fuel prices.

Earlier this week IAG's European rivals Air France and Lufthansa reported results battered by high fuel costs and said capacity would not grow as quickly as previously planned over the winter. In the US, shares in Delta Air Lines fell to a year low after it said fuel costs grew at a higher rate than revenue.

"Looking at the financial reports of some of our competitors, at first glance it would appear that we are doing slightly better... because we are working harder," said Walsh.

"There's very little we can do about fuel costs but what we can do is try and manage our controllable costs in the non-fuel areas and I think we've done that well."

The airline managed to shave 5.6 per cent off its non-fuel costs during the period, helping offset some of the 34.8 per cent rise in fuel costs.

It expects its second half fuel costs to come in at around €2.8bn, taking its annual bill to about €5.2bn, up from €3.9bn last year.

Shares in IAG in London, which have fallen 18 per cent in 2011, were up 0.3 per cent at 233.2 pence by 0745 GMT, valuing the business at around £4.3bn.

"These are good results at the upper end of expectations but the year-ago period was depressed by the ash cloud crisis and strikes at BA," said Charles Stanley analyst Douglas McNeill.

"We remain sceptical that through-the-cycle profitability is improving, and continue to rate the stock a 'hold' with some downside risk."

IAG, whose traffic rose 15.7 per cent in the second quarter, said its long haul business remained stable, with strength in the premium sector, but that the short haul European market remains highly competitive.

"The environment in London is somewhat better than the rest of Europe," said Walsh, who added that the deadlock over raising the US debt ceiling had created "uncertainty that everyone could do without" but said IAG's transatlantic business was performing well.

"The joint venture (between BA, Iberia and American Airlines ) is gaining premium market share from pretty much everyone out there."

While air travel has picked up after the 2008/2009 global downturn, fuel costs, political unrest and a drop in traffic caused by the March 11 Japanese earthquake and tsunami are causing headaches for airlines across the world.

Industry body Iata last month said premium traffic had slumped because of Japan's nuclear crisis, weakening world trade and Middle East turmoil and that the soft patch could continue for the next few months.