British Airways Parent IAG Reports Profit on Spanish Revamp

British Airways parent IAG SA (IAG) reported an operating profit in the second quarter following a year-earlier loss as the overhaul of its Spanish Iberia subsidiary takes hold and it saw improvements in the U.K.

Profit before one-time items reached 245 million euros ($324 million), compared with a 4 million-euro loss in the year-earlier period, London-based International Consolidated Airlines Group SA said in a statement today. British Airways accounted for a profit of 247 million euros, while Iberia paired its loss to 35 million from 93 million euros.

IAG has announced plans to cut about 3,000 jobs at Iberia as it concentrates the unit on more profitable long-haul routes, leaving short-distance activities in Spain to Vueling and Iberia Express, established last year with less-generous employee contracts. IAG acquired full control of Vueling, in which it already held a 45.85 percent, in April.

“The benefits of Iberia’s restructuring are beginning to show,” Chief Executive Officer Willie Walsh said in the statement. “Having reduced capacity at Iberia in the first quarter, costs began to be taken out in the second quarter following the implementation of the mediator’s proposal.”

First Step

IAG advanced as much as 15.2 pence, or 5.1 percent, to 312.3 pence in London, the most in three months, and traded at 306.7 pence as of 8:14 a.m. The stock has advanced 66 percent this year, making it the third-best performer on the 31-member Bloomberg World Airlines Index.

Walsh said almost 1,700 employees have left Iberia, calling it “the first step in the restructuring.” Another 700 staff will depart by year-end with the rest to exit in the following two years, he told reporters by phone.

The lower loss at Iberia managed to break a negative earnings trend at the Spanish arm that ran for 11 quarters, Walsh said. The unit benefitted from a 14 percent capacity cut in the first quarter, he said. While there remains “a lot of work to do,” he added “the trend is clearly positive.”

BA benefitted from strong London market and good transatlantic traffic, with improved commercial performance also at its London Gatwick operations, Walsh said.

Vueling delivered a 27 million euro profit since joining IAG, it said. “The airline continues to increase capacity profitably” and is targeting more business in Germany, Walsh said.

Target Maintained

IAG said trading continues to be “in line with recent trends.” The company said in February that profit before exceptional items would at least equal the 485 million euros it reported in 2011. The airline has stopped giving guidance pending a shareholder meeting next month to approve plane purchases.

The group is sticking to its target of delivering a 1.6 billion euro operating profit.

British Airways has embarked on a fleet renewal plan to help reduce fuel costs as it replaces older jets. The airline received the first of 12 Airbus SAS A380 on July 4 a week after introducing Boeing 787 Dreamliners.

Regularly scheduled British Airways flights using the Dreamliner will be unaffected by a probe into the jets emergency locator transmitter with the airline carrying out the instructions from regulators, Walsh said. Flights to Toronto are due to start next month.

IAG spent 2.9 billion on fuel in the first six months, a 2.1 percent reduction over the first half last year.

To contact the reporter on this story: Robert Wall in London at rwall6@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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