British Airways, Iberia fly back to profit before merger

29th October 2010, Comments 0 comments

British Airways and Iberia of Spain flew back into profits on Friday ahead of their merger as the pair cut costs and benefited from a fragile recovery in air travel and the global economy.

BA posted net profits of 107 millions pounds (122 millions euros, 170 million dollars) for the six months to September, its first interim profit for two years, as revenues rose and non-fuel costs fell.

In Madrid, Iberia posted a 74-million-euro net profit for its third quarter, or three months to September, after a year-earlier loss of 16.4 million euros.

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

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

The profits reflected steep cost-cutting and came despite recent travel chaos caused by the Icelandic volcanic ash cloud in April and cabin crew strikes.

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

"The changes we have made to our cost base are now having a big impact on the business," BA chief executive Willie Walsh said.

"I'm pleased with the results today -- they demonstrate that the action we have taken has been the right decision for the business. The figures speak for themselves."

He added: "The challenge we faced was one of structural cost difference between us and our competitors.

"We are also 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 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 pounds and way above analyst forecasts for profit of 73 million pounds.

"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 said.

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

BA shares sank 2.78 percent to 272.90 pence on the London stock market, which was 0.11 percent lower in late morning trade.

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 create Europe's second-biggest airline by market value after Germany's Lufthansa, combining 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 in a new agreement for greater coordination over routes.

The tie-up allows them to cooperate commercially on flights between the European Union, Switzerland, and Norway and the United States, Mexico and Canada.

© 2010 AFP

0 Comments To This Article