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International Airlines Group (LSE:IAG), the company formed from the merger of British Airways and the Iberia Group in January 2011, posted after tax profits of €555 million, or a 455% take-off from the €100 million posted in 2010 (the figure is based from the books of British Airways as the buyer of Iberia Group).
But reports noted BA “masked” the losses incurred by Iberia in 2011 by covering the €61 million operating loss with €592 million operating profit at BA.
At a conference call with reporters, IAG Chief Executive Willie Walsh admitted Iberia’s weak position saying, “BA is making money and Iberia is losing money”.
Iberia’s Challenges
From his statement in the annual report released today, CEO Walsh cited Iberia’s exposure to “financial uncertainty in the Eurozone” that hurt its’ balance sheet.
Mr. Walsh acknowledged stiff competition with no-frills airlines, high speed trains, and more efficient longhaul airlines.
Iberia is said to have a high cost base and an outdated workplace practices, that is now being tackled.
The Spanish fleet is to launch its short-haul flights via a new unit, Iberia Express, in an attempt to lower their cost base. However, the plan was not well received by the pilots, who prompted strikes in opposition to revisions in their contracts.
CEO Walsh stated the airline suffers €3 million per strike day were a result of the “continuing industrial action from Iberia’s pilots”.
IAG acknowledged that the labour unrest, along with weaker performance in Europe and higher fuel cost, will reduce operating profits in the first half of the year in the forthcoming year.
Financial Highlights
Overall, the consolidated sheet revealed more than double operating profits from €225 million to €485 million.
A tax credit awarded to British Airways for €52 million from deferred tax adjustments in relation to BA’s pension fund accounting and lower tax rates in the UK brought profits after tax to €555 million, after deducting exceptional items.
The group’s income was severely affected by a 32% increase in fuel and oil costs, offset only by combined savings made from aircraft operating leasing costs, selling costs, IT costs, among others.
2012 Outlook
IAG expects that operations in the summer will be affected by the Olympics, as indicated by experiences of previous host cities, but sees the long-term effect in its British operations where it flies to 200 destinations worldwide.
The group also estimates that, at the current exchange rate and oil prices, fuel costs will increase by more than €1 billion.
The increase in Air Passenger Duty (APD) in April is expected to influence the group’s UK operations.
Company Spotlight
International Airlines Group owns a fleet of 348 aircraft making it one of the largest airline groups in the world. Registered in Spain and controlled from its headquarters in the UK, the group is listed on both the London Stock Exchange and the Spanish Stock Exchanges.
In London trading today, IAG shares are valued at 166.5 pence a share, or a 3.5 pence increase from yesterday’s trading.
References
↑ BA-Iberia Profit Doubles in First Year of Merger
↑ IAG cautious on year ahead after strong 2011
↑ IAG warns of weak 2012 outlook
↑ BA AND IBERIA IN PROFITS TAKE-OFF
