By Steve Rothwell - May 6, 2011 3:41 AM ET
International Consolidated Airlines Group SA, formed from a merger of British Airways and Iberia on Jan. 24, logged a profit in its first quarter of operations, beating predictions, as traffic rose and the deal cut costs.
IAG posted net income of 33 million euros ($48 million) in the three months ended March 31, versus a pro forma loss of 243 million euros a year earlier, the London-based company said in a statement. Analysts had forecast a loss of 138.5 million euros.
Traffic advanced 5.6 percent in the quarter, led by an 18 percent jump in premium bookings in March that buoyed ticket prices and helped lift sales 15 percent to 3.64 billion euros. IAG also cut non-fuel expenses 5.2 percent in the three months, and earnings were swollen by an 80 million-euro tax credit.
“The trends that we’ve been seeing, with good premium volumes and yields, particularly in long-haul, will continue through the summer,” Chief Executive Officer Willie Walsh said on a conference call, predicting “significant growth” in operating profit for the full year. “We have also achieved a significant reduction in our controllable costs.”
IAG rose as much as 3.7 percent to 255 pence and was priced at 253 pence as of 8:20 a.m. in London, reducing the stock’s decline since the merger to 12 percent and valuing Europe’s third-biggest airline at 4.69 billion pounds ($7.7 billion).
Earnings equated to 1.7 cents a share, compared with a loss of 13.2 cents a year earlier. Sales also beat the 3.56 billion- euro average estimate of nine analysts surveyed by Bloomberg.
Strong Trend
“The trends are still good in premium traffic and that’s where the money is, though fuel prices are still very high,” said Gert Zonneveld an analyst at Panmure Gordon in London.
Premium yields, a measure of ticket prices, rose 4.4 percent in the quarter even as volumes rose almost 12 percent.
“They are still benefitting from the big post-recession recovery in yields, but that’s a factor that has started to run its course,” said Douglas McNeill, an analyst at Charles Stanley in London with a “hold” recommendation on IAG. “Increasingly, the focus will be on the hard graft of reducing unit costs.”
The price of oil has surged 20 percent in the past six months, prompting British Airways to lift a fuel surcharge three times since December, though the levy passes on only 50 percent of the cost and hasn’t so far hurt bookings, according to Walsh.
“All of the indications that we have seen is that it hasn’t had any discernable impact on demand,” said the CEO, who previously led BA. “That’s true of both premium and non-premium cabins, but clearly it’s something that we are looking at.”
April Surge
Traffic surged almost 25 percent in April, IAG said separately, after flights last year were disrupted by ash from a volcanic eruption in Iceland. First- and business-class bookings leapt 40 percent and economy demand advanced 22 percent.
Walsh said capacity increases at British Airways and Madrid- based Iberia were “appropriate” in the light of summer bookings that are “looking good.” The carriers have flexibility to curb seating if need be, he said.
To contact the reporter on this story: Steven Rothwell in London at srothwell@bloomberg.net
To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net
