British Airways Parent IAG Cuts Earnings Outlook

LONDON—British Airways parent International Consolidated Airlines Group SA Friday cut its earnings outlook further after third-quarter operating profit fell 3.6%, weighed down by the sharp drop in sterling after the U.K. voted to leave the European Union.

Operating profit for the crucial July through September period was €1.21 billion euros ($1.32 billion), with a €162 million currency headwind in the quarter. The figure strips out some nonoperating costs and taxes.

Net profit rose 9.9% to €930 million from €848 million. Sales in the period declined 4% to €6.5 billion.

"While strong, these results were affected by a tough operating environment with a very significant negative currency impact," IAG Chief Executive Willie Walsh said.

IAG reports earnings in euros, but its British Airways unit that generates most profit principally sells tickets in pounds which are now worth less.

The airline group, which also includes Aer Lingus and Spanish carriers Iberia and Vueling, cut its profit outlook for the year following the referendum. The pound has depreciated further since then against the dollar and the euro. Mr. Walsh said the guidance in July was based on the prevailing exchange rates now changed.

IAG Friday said it would deliver a full-year operating profit of €2.5 billion. It had already revised its outlook down to low double-digit growth in its adjusted operating profit beyond the €2.3 billion generated in 2015. IAG began the year expecting to deliver an operating profit of about €3.2 billion

European airlines have faced a multitude of headwinds weighing on earnings. Ticket prices are plummeting because of overcapacity, terror attacks have spooked passengers and repeated air-traffic-control strikes have led to thousands of flight cancellations.

Mr. Walsh said trading conditions said the business conditions were "tough," with low growth in Europe and weakness in markets such as Brazil. Conditions are worse than expected a year ago, he said, and had not improved since the Brexit vote.

The impact from air-traffic control strikes this year has been more pronounced than in prior years, he added.

Britain's June 23 vote to leave the EU has led the country's currency fall to more than 30-year lows. IAG isn't the only airline to suffer. Ryanair Holdings PLC, Europe's biggest discount airline, this month said its profit in the fiscal year ending March 31, 2017, would advance more slowly than expected because of the currency headwind.

Mr. Walsh, an Irishman who said he personally had opposed Britain leaving the EU, kept the carrier from joining others in lobbying to retain membership in the trade bloc, arguing an exit wouldn't materially impact the airline.

British Airways may raise ticket prices to offset sterling's weakness, Mr. Walsh said. However, he added that the currency weakness also have given the carrier a competitive edge on the important trans-Atlantic market because many of its costs have effectively fallen compared with U.S. rivals.

IAG on Thursday said it would pay an interim dividend of €0.11 per share, a 10% increase over the prior-year period, which it expects to be about half of the full-year payout.

IAG also said British Airways agreed with pension trustees a technical deficit of £ 2.8 billion ($3.4 billion), only slightly higher than the early projection. Annual payments are little changed.

Write to Robert Wall at [e-mail]

(END) Dow Jones Newswires

October 28, 2016 03:25 ET (07:25 GMT)

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