Iberia Rewarded With $4 Billion Fleet Order as IAG Profit Surges

Aug 01, 2014 3:11 am ET

Aug. 1 (Bloomberg) -- British Airways parent IAG SA ordered 16 wide-body jets including the newest Airbus model for its Iberia business after a turnaround at the Spanish arm helped boost group earnings 55 percent in the second quarter.

Iberia will get eight A350-900s, a plane not due to enter service until later this year, plus the same number of A330-200s from Airbus Group NV to replace 16 aging A340s, IAG said today. Three-month operating profit of 380 million euros ($509 million) before one-time items beat the average analyst estimate of 359 million euros, largely on the impact of cost cuts in Spain.

IAG has eliminated 3,000 jobs at Iberia and scrapped its worst-performing operations while adding capacity at British Airways as Chief Executive Officer Willie Walsh targets a 1.8 billion-euro operating profit by 2015. The CEO reiterated a goal of lifting annual earnings by at least 500 million euros beyond 2013’s 770 million euros even after rivals cut targets, saying his company has been tougher in controlling costs and capacity.

“Iberia has taken significant steps to restructure its business and the progress made so far means that we can bring new long-haul aircraft into the airline’s fleet,” Walsh said. The aircraft are worth about $4 billion at list prices, and include the current version of the A330 because a re-engined model won’t be available in time, he said on a conference call.

Shares of IAG, as International Consolidated Airlines Group SA is known, rose as much as 4.9 percent and were trading 3.9 percent higher at 343.60 pence as of 8:02 a.m. in London.

Spanish Revival

The stock has declined 13 percent this year after doubling in price in 2013, valuing the company, which is based in the U.K. capital, at 7.1 billion pounds ($12 billion).

Iberia posted a second-quarter quarter profit of 16 million euros versus a year-earlier loss of 35 million euros, IAG said. Walsh sealed the last of three pay settlements at the business in March, locking in more modest deals for pilots, ground- handling staff and cabin crew.

British Airways earnings climbed 34 percent to 332 million euros. The U.K. unit began flights to Austin, Texas, on March 3 and will deploy Airbus Group NV A380 superjumbos on flights to Washington from Sept. 1 as it taps North Atlantic demand.

Barcelona-based discount arm Vueling SA reported a three- month profit of 30 million euros.

The CEO retained IAG’s earnings outlook after revisions at other top carriers, saying he’ll avoid over-exposure on weaker routes by trimming winter capacity by 3 percentage points.

‘More Disciplined’

“I would argue we’ve been much more disciplined than our competitors, who are having to make bigger adjustments because maybe they saw all the sweets on the table and got a little bit greedy,” he said. “It’s a good market and it’s a growth market with the U.S. economy recovering very strongly and the U.K. economy recovering strongly and signs of Europe improving.”

Air France-KLM Group, Europe’s biggest carrier by passenger traffic, almost tripled second-quarter operating profit to 238 million euros, it said July 25 after trimming its full-year forecast to a range of 2.2 billion euros to 2.3 billion euro from as much as 2.5 billion euros previously.

Earnings at Deutsche Lufthansa AG, the European No. 2, fell 17 percent to 359 million euros as overcapacity weighed on ticket prices, with the German company reiterated its forecast for a full-year figure of about 1 billion euros.