British Airways Owner Strengthens Forecast After Aer Lingus Deal

Photographer: Matthew Lloyd/Bloomberg
  • Third-quarter profit growth lags behind European competitors
  • First dividend set with interim payout of 10 cents a share

British Airways parent IAG SA fell the most in more than three weeks after a raised 2015 profit forecast lagged behind analysts’ predictions.

IAG dropped as much as 5.1 percent, the steepest intraday decline since Oct. 7, and was trading down 4.7 percent at 569.5 pence as of 10:07 a.m. in London. Operating profit this year, excluding one-time items and newly acquired Aer Lingus, will total 2.25 billion euros ($2.47 billion) to 2.3 billion euros, IAG said Friday in a statement. That’s below the 2.31 billion-euro average of 16 analyst estimates compiled by Bloomberg.

The company, which also owns Spanish airlines Iberia and Vueling, reported a 39 percent jump in third-quarter operating profit excluding one-time gains or costs. That was less than a threefold surge in quarterly earnings posted by Air France-KLM Group, Europe’s biggest airline, and a 51 percent jump at second-ranked Deutsche Lufthansa AG. London-based IAG, which outlined its first interim dividend on Thursday, said the full-year payout will amount to 25 percent of underlying profit after tax.

“The minor improvement to guidance may disappoint the market, given upward pressure on estimates at other European airlines and considering the new guidance is consistent with current consensus, which seems unlikely to change,” Gerald Khoo, an analyst at Liberum, said in a note to investors.

Third-Quarter Gains

Third-quarter sales at London-based IAG rose 15 percent to 6.76 billion euros, spurred by Britons traveling abroad to escape the U.K.’s wettest August in decades. Operating profit, which totaled 1.25 billion euros for the group, was lifted by gains at British Airways, Iberia and low-cost unit Vueling. Dublin-based Aer Lingus, which was taken over in August, contributed 45 million euros to group earnings. IAG raised its full-year forecast from a prediction that 2015 operating profit would exceed 2.2 billion euros.

Aer Lingus is critical to Walsh’s growth strategy because London Heathrow airport, British Airways’ base, is operating at close to capacity and its expansion is caught up in political wrangling. IAG plans to add more Europe-U.S. flights from Dublin.

“We don’t intend to tinker much” with Aer Lingus’s business, Chief Executive Officer Willie Walsh said on a conference call with journalists. IAG has secured the aircraft needed for the division to add routes in 2016, including year-round services linking the Irish capital with Los Angeles; Newark, New Jersey; and Hartford, Connecticut, he said. “Its performance in the third quarter has been very good.”

Trans-Atlantic business “continues to perform pretty well and we remain optimistic,” while capacity will remain “pretty stable” on those routes, he said.

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