Profits at International Airlines Group, the owner of British Airways, have soared past €1bn (£730m) after tax and the company has promised even more for 2015 with a sharp upgrade to its forecast.
The post-tax profits and €1.4bn operating profit are vindication of the chief executive’s view that the merger of British Airways and Iberia would eventually pay off, after three years in which IAG was dragged nearer or into the red by heavy losses at the Spanish airline.
Chief executive Willie Walsh had promised that Iberia would break even in 2014 after a restructuring that included thousands of redundancies, and now the airline has made €50m in operating profit.
British Airways’ lucrative transatlantic routes and lower costs across the group underpinned the profits but Walsh said Iberia’s contribution was key to the improvement.
He said: “Iberia’s turnaround has been remarkable, both financially and operationally, and we’re very proud of its achievement especially its strong cost discipline.
“In 2013, we said our intention was for Iberia to break even in 2014 and it has fulfilled that promise.” He added that Iberia remained a work in progress but it would match the profit margins of BA in the medium term.
IAG, which also includes Spanish low-cost carrier Vueling, said operating profit across the group would probably come in above €2.2bn for 2015. That is more than 20% higher than its previous guidance, helped by the global oil price slump that is driving down fuel costs for airlines, as well as increased capacity.
Walsh said that although lower oil prices did help to bring down costs last year, other factors such as more fuel-efficient aircraft were also responsible.
“We achieved a strong unit cost performance – down 4.1% – through increased productivity, supplier cost savings and lower fuel unit costs. The latter was boosted by the introduction of more efficient aircraft into our fleet and lower fuel prices in the last quarter of the year.
However, the positive effect of the oil price reduction has been partly offset by hedging and significant currency impact.” Despite the profits, Walsh ruled out any announcements on cutting fuel surcharges for passengers, although he said the charges were kept under review.
Shares closed at 580p, up by 3.6%. Operating profit jumped 80% in the year to 31 December 2014, from €770m in 2013. Revenue rose 8% to €20.2bn (£14.5bn).
Walsh said IAG would continue to pursue its acquisition of the Irish flag carrier Aer Lingus, but he wouldn’t hesitate to walk away from a deal that would mean far more to Aer Lingus than IAG.
Its €1.36bn bid has yet to receive the support of the Irish government, which owns a 25% stake. Earlier this week, Dublin presented IAG with a new list of demands in return for backing a deal, including assurances on jobs and on connections between Ireland and London.
Walsh said he would be waiting another week before flying to Dublin next week to speak to unions and government officials. “We will sit down with the so-called expert panel that has been appointed by the minister of transport.
“For IAG, it’s not a must-do at all – it’s a nice deal, an attractive deal, one we like but we will only do it on terms that are acceptable to us and if they’re not we’ll have no hesitation in recommending to the board of IAG that we don’t proceed. For Aer Lingus it’s a much bigger deal – they’ve said that their ability to grow is significantly enhanced by being part of IAG.”
Despite recent pledges by George Osborne and the shadow chancellor, Ed Balls, to move swiftly on expanding Heathrow or Gatwick, Walsh said he remained pessimistic.
“You need political consensus. I think it’s highly unlikely we’ll have anything other than a coalition so the politics will be the overriding factor. I expect the airports commission will produce an excellent report but I don’t see any evidence of political consensus and I don’t believe there will be action on the back of it.”
