IAG warns on Spanish job cuts as Iberia drags performance down

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International Airlines Group has revised its full-year forecast downwards and warns it will make an operating loss for 2012 as the euro-area crisis continues to expose poor performance at its Spanish subsidiary, Iberia.

And the carrier group warns that job losses are inevitable at Iberia as it battles to address what chief executive Willie Walsh describes as "problems [which] are deep and structural". It hopes to finalise a restructuring plan for the airline by the end of September, which is likely to include "short-term downsizing, network reshaping...and a re-evaluation of all aspects of the business to deliver competitive costs and service to enable long-term profitable growth", says Walsh in a statement accompanying the group's half-year results for the period to 30 June.

Iberia made an operating loss of €263 million ($320.7 million) in the first half, compared with a loss of €78 million for the same period a year earlier.

IAG blames the poor performance on the "industrial action of employees, higher fuel prices, the negative impact of exchange rates and the increased economic weakness in Spain". It forecasts further losses at the unit for the remainder of the year.

The wholesale changes to Iberia are likely to see the group dealing with two sets of restructuring costs at once as the integration of BMI continues. This alone has accounted for €38 million of exceptional items since its acquisition in April, says IAG, although it stresses the integration with British Airways is "going well" and with completion forecast for year-end. BMI contributed €50 million of losses during the second quarter.

In contrast to Iberia's worsening performance, BA made an operating profit, even after exceptional items, of €13 million for the first half, compared with €210 million for the corresponding period in 2011.

The newly-launched Spanish low-cost subsidiary, Iberia Express, was profitable by the third full month of its operation in June, notes IAG.

Overall, IAG recorded an operating loss for the second half of €253 million before exceptional items, compared with an €81 million operating profit a year earlier.

Pre-tax losses ballooned to €390 million, from a profit of €39 million in 2011, on revenue that grew 9.8% to €8.53 billion. Fuel costs were up 25% to €2.97 billion in the period.

Traffic, as measured in RPKs, grew to 84.5 billion, on capacity, in ASKs, which was increased to 107 billion. Load factor rose 1.9 percentage points to 78.8%.