Iberia performance, fuel costs hit IAG profitability

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Sharply rising fuel prices and poor performance from Iberia, including the €25 million ($40.3 million) effect of a pilots' strike, combined to drag International Airlines Group further into the red in the first quarter.

For the period ended 31 March its pre-tax loss stood at €263 million, against €47 million a year earlier, a 460% change. This came despite total revenue climbing 7% to €3.9 billion, it says in a stock exchange statement.

The carrier group's operating loss was also markedly worse, growing 108% to €212 million, from €102 million in 2011.

But the performance of the individual airlines showed a noticeable difference. Iberia's operating loss for the quarter hit €170 million, up from €100 million last year, while BA's operating loss was £62 million, against £15 million in 2011.

IAG chief executive Willie Walsh says Iberia's poor performance reflects "the weakness of the Spanish domestic market and industrial action by pilots opposed to actions by Iberia's management to improve the airline's efficiencies."

Although the strike action has now been called off since the launch of Iberia Express "but the speed of revenue recovery post-strike and the performance of the Spanish markets are unclear at this stage."

Commercial performance at its Madrid hub is "worsening" on the back of economic issues in Spain and the wider eurozone, it says.

Demand for BA services into the London market "has remained strong" - particularly on long-haul routes - but its performance was impacted by rising fuel costs. Across the group, fuel costs for the quarter rose by 24.9% to €1.4 billion and increase this year by a total of "over €1 billion".

During the quarter it completed the acquisition of BMI from Lufthansa which has allowed BA to "manage its Heathrow slot portfolio more effectively", says Walsh. As a result, it will launch a new route to Seoul later this year, alongside new services to Leeds-Bradford, Rotterdam and Zagreb.

IAG expects that its operating profits will be diluted by around €240 million in 2012 thanks to the costs associated with the BMI acquisition, including restructuring charges of €90 million.

Total passenger revenue in the quarter was €3.2 billion, against €3 billion a year earlier. Traffic grew 3.6% on capacity raised by 0.6%, leading to load factor up 2.2 percentage points.

Cargo revenue was flat at €291 million.