Cost savings exceed IAG hopes

International Airlines Group set a new long-term operating profit target and said cost savings from the British Airways-Iberia merger would be higher than expected, helping it defy the gloom surrounding the global airline sector.

It set a new target for the merged entity to make an operating profit of around 1.5 billion euros ($2bn) in 2015.

Europe’s second-biggest airline group by value behind Germany’s Lufthansa said it expected to achieve annual synergies of 450 million euros in 2015, the fifth year following the merger of BA and Iberia, up from 400 million euros previously.

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“Specific areas of financial benefit including the creation of (low-cost carrier) Iberia Express – at least 100 million euros – and hub improvements at Madrid Barajas airport – at least 100 million euros,” IAG chairman Antonio Vazquez said.

“From a 2010 base, we expect the optimisation of the transatlantic joint business with American Airlines to deliver at least 150 million euros.”

BA and Iberia sealed an $8bn merger last year, a move which helped the pair stem huge losses following the worst industry downturn in decades.

“The upgraded synergy guidance and contribution expected from the American Airline venture are a positive,” said Davy Stockbrokers analyst Joshua Goldman.

Industry body IATA last month said it expected airlines to suffer a weak end to the year due to waning consumer confidence, sluggish international trade and high fuel prices. Airline traffic has also been hit by the effects of political unrest in North Africa and the Middle East.