British Airways Parent IAG Plans Dividend Payout in 2015

British Airways parent IAG SA said it will resume dividend payments next year as its focus on the U.S. guards against a slowing European economy.

IAG reiterated a target in operating profit in the range of 550 million euros to 600 million euros ($743 million) for 2014 above last year’s 770 million euros, excluding items, according to a statement today. The London-based company said “significant progress” this year has boosted confidence in meeting 2015 targets, a trigger for reintroducing a dividend.

Under Chief Executive Officer Willy Walsh, IAG has expanded British Airways to tap strong North Atlantic demand while slashing jobs and routes at its Spanish unit Iberia. Third-quarter earnings rose 30 percent to 900 million euros, the company said on Oct. 31, as cost cuts at Iberia and a focus on the U.S. put it in a stronger position than rivals Air-France KLM Group and Deutsche Lufthansa AG.

“We recognize that this is an industry that has destroyed value in pursuit of growth that was not profitable, but exciting,” Walsh said, speaking at IAG’s capital markets day in London. “We’re in this business to make a return and exceed our cost of capital.”

IAG today outlined plans to begin making dividend payouts equal to 25 percent of underlying profit after tax. Other goals include achieving an operating margin of 10 percent to 14 percent for the five years through 2020, as well as average earnings per share growth of 10 percent annually. Capital spending for the period will range from 2 billion euros to 3 billion euros.

Welcome Disclosure

The targets offer a “welcome level of disclosure, underpinning a long-term, consistent and sustainable growth profile for the group,” James Hollins, an analyst at Nomura, said in a note to investors today.

IAG dropped 0.9 percent to 410.4 pence as of 2:30 p.m. in London, after gaining as much as 1.4 percent in earlier trading. The stock has risen 19 percent in the past 12 months, valuing the company at 8.49 billion pounds ($13.4 billion)

Allowing each of its airlines to operate independently has ensured growth of IAG as a whole, protecting British Airways and discount unit Vueling from the turbulence of restructuring efforts at Iberia, Walsh said. The airline group remains interested in acquisitions, he added.

“Without question those opportunities will present themselves,” the executive said. “We will only pursue inorganic growth if it delivers as our organic growth is doing.”

Latin America

Iberia will seek to bolster its control of Europe-to-Latin American traffic, where it controlled over 17 percent of market share last year, CEO Luis Gallego said. On-time performance and productivity have both improved, he said, adding that 70 percent of planned job cuts, or 3,800 positions, will be completed by the end of this year.

British Airways CEO Keith Williams said his airline is mulling route opportunities out of London Heathrow, where it controls 52 percent of slots, after rival Virgin Atlantic withdrew from destinations including Mumbai, Cape Town and Tokyo. On short-haul, BA is focused on retaining business passengers, he said, adding that cabin alterations on its A320s, A321a ans A319s and will boost seat density by 6 percent.

IAG will take delivery of its 10th Airbus Group NV A380 by the end of 2015, a quarter early, and aims to retire its Boeing Co. 737s and 767s by the end of 2015 and 2016, respectively. Airbus A330s will fill the bridging roll between the A340 and the A350, IAG CFO Enrique Dupuy said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE