IAG Sees Profit Growth In Face Of Rising Oil

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Published: May 6, 2011

International Airlines Group, formed by the merger of British Airways and Iberia, said it expected “significant growth” in operating profit this year as a continuing recovery in travel helps unit revenue and costs.

Europe’s second biggest airline group by value however warned on Friday that rising oil prices still posed a challenge for the year ahead.

“The trends we’ve been seeing, with good premiums and yields, particularly in long-haul, will continue through the summer,” IAG’s chief executive Willie Walsh said after IAG posted a smaller-than-expected operating loss for the first quarter

But he added that “fuel costs remain the big challenge facing the industry.”

International oil prices hit a 2-1/2 year high last month as unrest spread in North Africa and the Middle East, spurring concerns over supply, but fell below USD$ 100 per barrel after suffering the second biggest fall on record on Thursday.

IAG said it expects the recent events in Japan and North Africa to have a negative impact on its results of between EUR€90 million and EUR€100 million, and a EUR€5.2 billion fuel bill for the year.

“What’s most worrying is the fuel bill. It’s going to be very difficult to pass on the rise in ticket prices considering tough competition in the sector,” an analyst in Spain said.

British Airways announced another fuel surcharge increase on long-haul flights last month as the high price of oil further squeezes European consumers struggling with rising inflation and wage freezes.

OIL, UNREST THREATEN RECOVERY

Airlines around the world have taken a hit from turmoil in North Africa and the Middle East as well as from the earthquake and nuclear crisis in Japan, coupled with high oil prices and fierce competition with low-cost carriers.

Even before the earthquake hit Japan in March, IATA had forecast global airline net profits would halve this year as rising costs offset increased demand.

This week it said it expects air travel markets to remain depressed in the second quarter after growth in international air passenger traffic slowed in March due to disrupted traffic flows to and from Japan.

Still, passenger traffic for IAG rose 24.9 percent in April, reflecting the impact of closed air space in the same month last year due to a volcanic ash cloud.

IAG said its first quarter operating loss narrowed to EUR€102 million, while revenues rose 15.4 percent to EUR€3.64 billion, driven by growing first and business class travel.

Year-ago comparisons were calculated by IAG since the two airlines sealed their merger in November.

Rival Lufthansa posted a first-quarter operating loss of EUR€227 million on Wednesday but confirmed its 2011 outlook, while Air France-KLM reports fiscal-year earnings on May 19.

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