A solid set of interim results sees British Airways owner International Consolidated Airlines (IAG) edge back after an early morning 3% rise, the shares 2p higher at 332.8p, as the market mulls the airline's return to profit.

Chief executive Willie Walsh is busy telling investors in the half year to end June the group made an operating profit of €230 million. That compares with a €33 million operating loss this time last year. Revenue was up 6.7% although non-fuel costs rise 4.9%. 'We have also improved our cash and adjusted gearing position since the end of last year,' says Walsh.

It is the group's second quarter performance which provided the tailwind and the chief executive points out that all the group's airlines have had their highest second quarter operating results since 2007. IAG posts an overall €380 million operating profit, substantially more than last year's €245 million equivalent, and beating consensus forecasts of a €354 million.


When the group posted its first quarter results in May, operating losses in Q1 had narrowed to €150 million from €278 million a year earlier.

UK flag carrier British Airways remains the star with an operating profit of €332 million in the second quarter, up 34%. Spanish airline Iberia made a smaller contribution at €16 million, although that's a significant improvement on the €35 million operating loss last year.

The forecast-beating second-quarter showing is largely down to improving cost control, although lower jet fuel costs also fell sharply, 9.3% in real terms. This is apparently driven by lower average fuel prices net of hedging and lower consumption with the introduction of more efficient Airbus A330, A380 and Boeing 787 aircraft.

Restructuring at Iberia continues apace and and last week Iberia signed an agreement that could lead to an additional reduction of up to 1,427 jobs, creating new opportunities for Iberia to enhance its profitability further in the next two or three years.

On the basis of a strong second-quarter showing, broker Cantor Fitzgerald thinks the full year outlook for IAG is unchanged with operating profit expected to come in around €1.3 billion. O the basis that 'IAG is trading on a 2014e price to earnings (PE) multiple of 10-times, about in-line with the European sector,' Cantor analyst Robin Byde maintains his Hold recommendation on the stock despite slapping a 470p target price on the shares.

Issue Date: 01 Aug 2014