Iberia continues to drag down British Airways as IAG’s losses add up in Q1

International Airlines Group reported wider first-quarter operating losses on Friday, as deepening trouble at its Spanish carrier Iberia wiped out progress at British Airways.

IAG, Europe’s third-biggest airline group by market value, made an operating loss of 278 million euros ($364 million) in the year’s first three months, traditionally weak for airlines.

The Spanish carrier contributed 202 million euros of that – up from 169 million euros a year earlier – as it suffered from competition from low-cost rivals and high-speed trains, labour disputes and a recession that has left a quarter of Spaniards out of work.

Rival European carriers Lufthansa and Air France-KLM are also slashing jobs and shelving growth plans as they grapple with high fuel prices, a weak economy and fierce competition from low-cost carriers and Middle East airlines.

IAG took a 311 million euro charge in the quarter for restructuring that plans to cut 3,100 jobs to return Iberia – Europe’s biggest carrier to Latin America – to profit by 2015.

That was on top of 545 million euros last year and while Chief Executive Willie Walsh said there was “more work to be done”, he said he did not expect further significant charges this year.

Liberum analyst Peter Hyde called IAG’s results a mixed bag.

“To achieve our forecast 2013 operating profit of 505 million euros IAG needs Iberia to restructure quickly and British Airways to leverage its market position,” he said.

BA itself broke even during the quarter, helped by strength in business and first-class traffic, excluding costs relating to the integration UK carrier BMI which it bough last year.

But IAG also suffered from the weakness of sterling against the euro and the dollar, pushing its losses up from 249 million euros a year ago and above the average 230 million loss forecast by analysts in a Reuters poll.

Shares in IAG, which have risen 20 percent in the last month, were down 3.5 percent at 270.5 pence by 1005 GMT, valuing the business at just over 5 billion pounds.

Dreamliners

Prior to its merger with Iberia in 2011 BA faced similar problems to the Spanish carrier and responded by cutting staff, lowering salaries and offering more competitive ticket prices.

IAG said it could not provide guidance for 2013 operating profit because it was waiting for shareholder approval for its fleet replacement orders, which could impact future profits.

The airline group last month unveiled orders for 18 Airbus A350 long-haul jets and firmed up orders for 18 of Boeing’s 787 Dreamliners, on top of a previous orders for 24 of the lightweight jets.

Walsh said IAG would receive its first two Dreamliners by the end of June after deliveries were delayed by two months due to Boeing’s much-publicised battery problems.

Earlier this year Walsh said IAG would report an operating result close to the 485 million euros profit it delivered in 2011, subject to the success of its Iberia restructuring plan.

Walsh said reports linking Qatari investment groups with the purchase of Spanish lender Bankia’s 12 percent stake in IAG were wide of the mark.

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