British Airways partnership turns in profit

International Airlines Group, formed by the merger of BA and Iberia, defied the gloom in the airline sector by swinging to a profit in the first half and predicting full-year earnings growth.

Europe’s second-biggest airline group by value behind Lufthansa said yesterday pretax profit in the six months to the end of June rose to 39m euros (£34.2m) from a loss of 419m euros (£405m) on revenues 17.9 per cent higher at 7.8 billion euros. Chief executive Willie Walsh expects the group to deliver “significant growth in operating profit this year” despite soaring fuel prices.

Earlier this week IAG’s European rivals Air France and Lufthansa reported results battered by high fuel costs and said capacity would not grow as quickly as previously planned over the winter. In the United States shares in Delta Air Lines fell to their lowest point this year after it said fuel costs grew at a higher rate than revenue.

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Mr Walsh said: “Looking at the financial reports of some of our competitors, at first glance it would appear that we are doing slightly better ... because we are working harder.

“There’s very little we can do about fuel costs but what we can do is try and manage our controllable costs in the non-fuel areas and I think we’ve done that well.”

The airline managed to shave 5.6 per cent off its non-fuel costs during the period, helping to offset some of the 34.8 per cent rise in fuel costs.

It expects its second half fuel costs to come in at around 2.8bn euros (£2.4bn) , taking its annual bill to about 5.2bn euros (£4.5m) , up from 3.9bn euros (£3.4bn) last year.

Charles Stanley analyst Douglas McNeill said: “These are good results at the upper end of expectations but the year-ago period was depressed by the ash cloud crisis and strikes at BA.

“We remain sceptical that through-the-cycle profitability is improving, and continue to rate the stock a ‘hold’ with some downside risk.”

IAG, whose traffic rose 15.7 percent in the second quarter, said its long haul business remained stable but the short haul European market remained highly competitive.