The restructuring of Spanish national carrier Iberia is finally starting to bear fruit for International Consolidated Airlines (IAG). Shares in the airline rise 5.7% to 314p as it reports a second quarter operating profit €245 million versus €4 million loss in the same period a year ago.
IAG chief executive Willie Walsh says that the benefits of Iberia's restructuring are beginning to show. 'Having reduced capacity at Iberia in the first quarter, costs began to be taken out in the second quarter following the implementation of the mediator's proposal. Nearly 1,700 employees have left the airline so far with remaining staff taking salary reductions of 18 per cent for flight and cabin crew and 11 per cent for all other employees,' he comments.
'This is the first step in the restructuring but it is already bearing fruit with Iberia's losses down from €93 million last year to €35 million reversing the negative trend of the last 11 quarters,' he adds.
Deutsche Bank analyst Geoff Collyer reckons today's results 'give us significantly more confidence that Iberia can and will be restructured effectively.'
British Airways' performance continues to improve with operating profit up from €94 million in 2012 to €247 million.
IAG says operating losses for the six months to June reduced to €33 million compared to €253 million in the same period in 2012 while passenger unit revenues rose 2.8%. Overall revenues are up 2.1% to €8.7 billion.
An improving group performance was not solely down to Iberia feed-through. Since joining IAG on 26 April, budget carrier Vueling achieved an operating profit of €27 million in the rest of the quarter and has continued to manage its capacity growth effectively as European demand proved stronger than expected over the second quarter. Collyer sees the Vueling performance as an 'opportunity to significantly expand this business as a quasi feeder for BA & IB long-haul.'
A drop in fuel costs also added meaningfully to the bottom line, falling 3.7% to €2.9 billion over the six months to 30 June compared to just under €3billion in the same period in 2012. IAG ended the six months with cash up €718 million at €3.6 billion while gearing edged up three points to 54%.