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IAG posts second-quarter loss of €95m

Job losses expected for the flagging Spanish airline Iberia.

There's turbulence at the International Airlines Group (IAG), which today reported a second-quarter loss of €95m, compared to a profit of €38m for the same period last year.

The multinational holding company, formed in January 2011 by the merger of British Airways and the Spanish airline Iberia, made an operating loss of €4m in the quarter, including €50m of BMI losses before exceptional items. Revenue performance was up 11.5 per cent but this silver lining was countered by a 25 per cent increase in fuel bills to €314m.

Meanwhile, total revenue increased by 11.5 per cent to €4.61bn (2011: €4.13bn). Passenger revenue improved by 14.3 per cent to €3.92bn (2011: €3.43bn).The airline group carried 14.3 million passengers during the quarter, an annual increase of 8 per cent.

During the first half, British Airways made an operating profit (after exceptional items) of €13m and Iberia made an operating loss of €263m. Overall operating losses came to €253m, excluding the exceptional items, compared to a profit of €88m for the first half of 2011.

Willie Walsh, chief executive of IAG, said:

For the half year, we made an operating loss of €253 million, before exceptional items, with revenue up 9.8 per cent and fuel costs up 25.0 per cent. Our synergies programme continues apace and we remain on track to deliver our 2012 targets and €500m annual benefits by 2015.

While we have made specific investments for longer term commercial benefits such as the Olympic sponsorship and Master brand advertising at British Airways and the development of our Avios frequent flyer currency, we remain focused on stringent cost control across the group.

BMI restructuring costs accounted for most of the €38m of exceptional items. These costs and the airline's losses are in line with our expectations. The integration of BMI mainline into British Airways is going well with completion due by the year end. There remains a stark difference in the performance of our subsidiaries. British Airways made an operating profit despite rising fuel prices while Iberia’s losses deepened.

Iberia’s problems are deep and structural and the economic environment reinforces the need for permanent structural change. We are currently working on a restructuring plan for Iberia which we anticipate will be finalised by the end of September. This is likely to include short-term downsizing, network reshaping to deliver higher unit revenues and a re-evaluation of all aspects of the business to deliver competitive costs and service to enable long-term profitable growth. Inevitably, we will not be able to avoid job losses as part of this process.

There has been an excellent start made by Iberia’s new cost effective subsidiary Iberia Express, which was profitable in its third full month of operation in June and has established an exemplary operating performance from Madrid Barajas.