BA, Iberia log profits as aviation sector pilots recovery

29th October 2010, Comments 0 comments

British Airways and Iberia of Spain posted healthy profits on Friday, mirroring European peers Alitalia and Lufthansa, as the global economic recovery drives growing demand for air travel.

BA, which is merging with Iberia, said it rebounded to a net profit of 107 millions pounds (122 millions euros, 170 million dollars) for the six months to September, its first interim profit for two years.

"We are ... benefiting from an improved economy, which we hope will pick up in 2011. We don't see any evidence to support a double-dip (return to recession)," BA chief executive Willie Walsh said.

Iberia posted a net profit of 53 million euros (73 million dollars) for the nine months to September, recovering from a loss of 182 million euros a year earlier.

The healthy results were the latest evidence of a strengthening recovery in the airline industry which was savaged by the worldwide economic slump that hammered demand for air travel.

"The general rebound in economic growth since the lows of late 2008 has aided," said analyst Keith Bowman at the Hargreaves Lansdown brokerage.

"Demand for business passenger travel has improved -- a rebound in the fortunes of the world's financial centres is likely to be an underlying factor.

"General improvements in trade activity have also assisted cargo volumes," he added.

German flag carrier Lufthansa, meanwhile, reported on Thursday that its net earnings tripled in the third quarter while Italy's Alitalia also reported soaring profits for the period.

"A recovery does indeed seem underway -- however we are a very long way off from previous profit margins and even further away from sustained profitability," noted FBE Aerospace analyst Saj Ahmad.

"With so many mergers in the pipeline, all the hard work could be undone as airlines work for synergies and amalgamation of their businesses -- so it's not over yet.

"There are still significant risks and challenges ahead for almost every player in Europe," he warned.

BA's first-half net profit compared with a net loss of 217 million pounds in the six months to September 2009, the airline said in a statement.

The performance reflected steep cost-cutting and came despite recent travel chaos earlier this year that was caused by the Icelandic volcanic ash cloud and cabin crew strikes.

"Our concerted efforts to introduce permanent structural change across the airline has led to a reduction in non-fuel costs and a return to profitability," Walsh added.

BA revenues rose 8.4 percent to 4.45 billion pounds in the reporting period, while operating costs declined 1.5 percent.

Pre-tax profit hit 158 million pounds, compared with a year-earlier loss of 292 million and more than double market forecasts.

Next month, BA and Iberia shareholders will vote on their merger deal that is due to be completed in January 2011, creating the second largest airline group in Europe after Lufthansa.

Despite healthy profits, BA saw its share price slide on Friday as the group warned that the economic outlook was uncertain -- and slammed a tax hike in Britain next week.

On Monday, the British government will ramp up Air Passenger Duty (APD), which is levied on all flights from British airports. The tax will rise by 55 percent for the most far-flung destinations.

"While positive, the economic environment continues to be subject to uncertainty, to which the increase in APD is unhelpful. We continue to focus on managing our costs," the British carrier said.

The BA-Iberia tie-up will combined Iberia's strong position in Latin America with BA's presence in Africa, Asia and North America.

Following the merger, Walsh will become chief executive of a new umbrella company which will control the two airlines, International Consolidated Airlines Group (IAG), while Iberia chairman Antonio Vazquez will be chairman.

Earlier this month, BA launched a transatlantic alliance with Iberia and American Airlines, pledging cheaper fares and more travel choice.


© 2010 AFP

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