The rally in British Airways-owner International Consolidated Airlines (IAG) has run out of steam as today's quarterly results force the travel group down 2.7% to 273p.


The £5 billion cap revealed worse-than-expected losses of €278 million for the three months to March 31. Central to the negative market reaction was €311 million 'exceptional' items that related to the ongoing and problematic restructuring of Iberia as the Spanish carrier struggles to deal with economic headwinds and robust budget competition.


The charge included €265 million for redundancies and €47 million for returning leased planes as well as standing down owned aircraft.




While quarterly revenues were up 0.5% at €3,939 million – compared to €3,919 million in the same period in 2012 – the group's increased costs included €46 million or 1.2% of unfavourable currency impact.


IAG chief executive Willie Walsh was sanguine: 'We're reporting an operating loss of €278 million this quarter before exceptional items, which at constant currency was €38 million better than last year. Total revenue was up 0.5% and costs up 1.2%. These results are encouraging with underlying revenue strength in strategic markets however while the first step towards restructuring Iberia has been taken, there is more work to be done,' he said.


Quarterly passenger unit revenue was up 3.9% (or 5.3% at constant currency), on capacity decreases of 2.1% while passenger yield was up 2.1%.


Cash at the period end was €2,833 million, down €76m in the period but net debt also fell by €157m to €1,732


While the headline operating loss was greater than expected, of more concern to investors is likely to be the fact that management was unable to give specific operating profit guidance. This was explained in terms of the group needing to seek shareholder approval for previously announced British Airways fleet orders and the consequent requirement to report on any outstanding profit forecast as part of that process.


Edward Stanford, analyst at Oriel Securities, thought there might be some short-term disappointment at the scale of the first-quarter loss but investors should 'take comfort from the fact that restructuring in Iberia has started in earnest, although there remains more to do.'


Cantor analyst Robin Byde, who has a 'buy' rating on the stock, said: 'One quarter is not overly important but the stock will likely see profit taking and consensus (forecasts) may come under pressure.'

Issue Date: 10 May 2013