Profits are up, up and away at IAG

IAG, which owns British Airways and Iberia, earned €503m pre-tax last year. That's over five times its 2010 profits.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
All in all, 2011 was much kinder to IAG than 2010. There were no pesky ash clouds to disrupt flights, fewer strikes, and the global economy was less depressed. Revenues are up over 10% to €16.3bn with strong demand for North Atlantic routes. And CEO Willie Walsh even managed to squeeze a few more pounds out of flyers, bringing the average spend per customer up by 3.6%.

While fuel still remains a massive overhead for the airline company, IAG has clipped wings of a number of its non-fuel outgoings, saving 5.6% on its previous annual bill. Nevertheless, Walsh makes it very clear that there is one thing unnecessarily sapping cash…

‘British aviation’s competiveness is undermined by the UK government’s determination to continually increase Air Passenger Duty with the latest rise due this April,’ he says. ‘In 2011 British Airways paid almost £500 million in APD. As a result of the latest increase, the airline is reducing by around half the number of new jobs it’s creating this year and has postponed plans to bring an extra Boeing 747 back into service.’

He doesn’t mince his words, Walsh.

Looking forward, IAG reckons that the Olympics may put a sizeable dampener on outbound UK travel but bosses remain confident that it ‘will be positive for the long-term position of London as a global destination’. Fuel prices will definitely drag earnings down in the coming two quarters, however: IAG predicts a fuel cost increase this year of over €1bn.

As for IAG’s mooted takeover of BMI, the regulators are still yet to reach a decision (Branson is still beating his anti-competitiveness drum every chance he gets). But, should the acquisition complete this year, that’ll make a nasty dent in IAG’s balance sheet. And, with Lufthansa-owned BMI still burning money (it made a 2010 operating loss of €140m), IAG’s 2011 profits are just the buffer that Walsh and his shareholder need to ensure a soft landing…

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