British Airways parent International Consolidated Airlines Group SA (IAG) said its first-quarter loss widened as fuel costs crimped margins, European economies slowed and pilots at its Spanish Iberia unit staged strikes.
IAG’s operating loss was 249 million euros ($321 million), compared with a 102 million-euro shortfall a year earlier, the London-based company said today. Analysts had expected a loss of 240 million euros, on average, according to a Bloomberg survey.
Airline-industry profit will probably drop 62 percent to $3 billion this year, the International Air Transport Association reckons. BA suffered a 62 million-pound ($100 million) quarterly loss and Iberia had a 170 million-euro deficit, including 25 million euros of costs from a pilot strike over reduced pay in Europe. IAG said it will do little better than break even in 2012 after the expense of buying Deutsche Lufthansa AG (LHA) unit BMI.
“Fuel is the issue, and there’s still a divergence between BA and Iberia,” said Douglas McNeil, an analyst at Charles Stanley in London with a “buy” rating on IAG stock. “Iberia faces a lot of challenges and is posting disappointing results, though there’s a plan in place for quite a bold restructuring.”
Europe’s third-biggest airline, formed from the merger of British Airways and Iberia in January 2011, traded 0.6 percent higher at 9:58 a.m. in London after earlier falling 2.8 percent.
IAG has gained 11 percent this year for a value of 3.04 billion pounds. Regional No. 1 Air France-KLM Group (AF) has dropped 8 percent and Lufthansa, ranked second, is down 0.2 percent.
While sales at IAG rose 7.8 percent in the three months to 3.92 billion euros, fuel costs surged 25 percent to 1.41 billion euros. Passenger traffic advanced 3.6 percent as capacity was increased by 0.6 percent, pushing the load factor, a measure of seat occupancy, up 2.2 percentage points to 76.1 percent.
Chief Executive Officer Willie Walsh said on a conference call today that there’s no evidence of the U.K. recession hurting BA’s most lucrative long-haul routes out of London Heathrow, Europe’s busiest air hub, and that the unit’s business is generally performing well before the impact of fuel prices.
At Iberia, Walsh is seeking a return to profit through the transfer of domestic and short-haul flights to the new Iberia Express unit, which aims to reduce the break-even point by offering less-generous contracts.
“Iberia’s performance reflects the weakness of the Spanish domestic market and industrial action by pilots opposed to actions to improve the airline’s efficiencies,” the CEO said.
British Airways aims to add more longer-distance routes following the purchase of BMI, completed last month, which boosts its holding of scarce operating slots at Heathrow.
IAG yesterday announced the sale of BMI’s Regional arm to U.K. bidders for 8 million pounds and Walsh said efforts to offload discount unit BMIbaby are continuing, though some routes from Birmingham, East Midlands and Belfast City airports will close in June ahead of a possible shutdown in September.
“We’re continuing to try,” he said. “We have had some parties that have expressed an interest. But Lufthansa had been trying to sell it for some considerable time.”
Walsh said today that British Airways will also use the new takeoff and landing positions at Heathrow to open routes from Leeds-Bradford airport in northern England, Rotterdam in the Netherlands and Zagreb in Croatia, and is amenable to links with more U.K. and European airports provided they help feed its hub.
“The focus will be on long-haul expansion and markets in Asia and Latin America, but to ensure the routes are sustainable we need effective feed from our short-haul network,” he said.
Buying BMI will dilute operating profit by 240 million euros over 12 months, IAG said, including one-off restructuring costs to be booked this year of approximately 90 million euros.
Costs from BMI are including in IAG’s full-year earnings projection. Analysts had previously expected an operating profit of 234 million euros for the period.
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