Overhaul sees airline Iberia start to overcome the turbulence

The owner of British Airways posted another big loss
The owner of British Airways posted another big loss
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The owner of British Airways said the revamp of its Spanish carrier Iberia was starting to bear fruit as the group swung to a quarterly profit, sending its shares to an all-time high.

International Airlines Group has spent around 700m euros on restructuring Iberia, which reduced losses for the first time in almost three years in the second quarter.

The Spanish airline became unprofitable in all markets, including long-haul, following its merger with British Airways (BA) in 2011.

BA operates a service from Leeds Bradford to London Heathrow three times a day but a spokeswoman yesterday declined to say how the route was performing, saying the information was “commercially sensitive”.

Iberia has been hit by competition from low-cost rivals and high-speed trains, labour disputes and a recession that has left a quarter of Spaniards out of work.

“Iberia has started to turn the corner,” IAG chief executive Willie Walsh said. “It is starting to see the benefits of cuts to costs and capacity but there’s still a long way to go.”

Full-service carriers such as BA and Germany’s Lufthansa have slashed jobs and shelved growth plans as they grapple with high fuel prices, a weak economy and low-cost rivals.

IAG has cut 1,700 jobs at the Madrid-based carrier and plans to take that figure to more than 3,000 by 2014 as part of plans to focus on long-haul routes. Budget carrier Vueling, which IAG acquired earlier this year, and its Iberia Express unit, will concentrate on shorter services.

Losses at Iberia fell to 35m euros in the three months to June 30 from 93m in the same quarter last year.

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

BA, is now performing consistently well and second-quarter profit almost trebled to 247m euros, boosted by strong transatlantic traffic out of its London Heathrow base.

Shares in IAG, which have risen 57 per cent so far this year, hit 312.30p at one stage yesterday, their highest level since the merged BA-Iberia listed on the stock market in January 2011.

“We’re seeing the combined effect of a strong performance from BA and the early impact of the radical restructuring at Iberia,” said Davy analyst Stephen Furlong. “This will focus investors’ minds on IAG’s profit targets, which, judging by the progress being made at Iberia, look do-able.”

IAG reported a second-quarter operating profit of 245m euros, compared with a four million loss a year ago.

The group plans to increase capacity by 5.2 per cent this year, helped by Vueling, which delivered a 27m euro profit in the quarter.