International Airlines Group – the owner of British Airways and Iberia – will be pushed into a full year loss thanks to Spain’s growing economic problems.
The group is planning a major restructuring of its Spanish business, describing Iberia’s problems as “deep and structural”. This will involve cutting back the network and job losses at a time when Spanish unemployment is soaring and it is in dispute with the airline’s pilots. Chief executive Willie Walsh said:
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.
A number of factors have improved over the past three months. Underlying BA trading conditions remain firm and bmi integration is on track, but any benefit from an easing of fuel prices has been more than offset by the deterioration in Spanish economic conditions.
We were previously targeting a break-even operating result this year, after the impact of restructuring costs and the short term earnings drag from the bmi acquisition. However, in the light of the Spanish macro headwind, we now expect to make a small operating loss in 2012.
Overall the group made an operating loss of €253m for the first half including €50m of losses from its recent acquisition, bmi. There were also €38m of restructuring charges related to bmi.
The company’s shares have dropped 5.4p to 153.9p, making it the biggest faller in a rising FTSE 100. But analysts mostly remained positive. Douglas McNeill at Charles Stanley said:
IAG’s second year continues to be a lot less good than its first, with a first-time inclusion of losses from newly-acquired bmi compounding the pain of a billion-euro hike in the fuel bill. Yields are increasing at much the rate we expected and non-fuel costs look to be under control, but our 2012 forecasts will have to move down a bit to reflect new guidance. However, this is unlikely to alter our positive view on the stock, which we think does not price in enough of the gains from the original merger and the bmi deal.
… and it continues ….