IAG profits soar above €1bn

As the airline turns its fortunes around, boss Willie Walsh ups the ante on its Aer Lingus bid.

by Adam Gale
Last Updated: 26 Feb 2016

IAG really should consider sending a thank you card to its new shareholders in Qatar, one of the OPEC members whose decision not to cut production has helped keep oil prices unusually low.

Cheap oil helped pre-tax profits at the airline group soar 95% on last year to €1bn (£752m) - a remarkable renaissance for the British Airways and Iberia owner, which in 2012 was making a loss. The firm benefitted from a 7.8% reduction in its fuel unit costs for the year to December 31st, while revenues rose 8% to €20.2bn.

IAG's successes aren't only due to fuel economics, however. Boss Willie Walsh has led a strict cost-cutting programme that contributed to a 1.9% decrease in non-fuel unit costs across the group. The effects have been concentrated in Spanish airline Iberia, where operating profits were €50m compared to a €166m loss in 2013.

Walsh was a model of modesty. 'The airline's turnaround has been remarkable, both financially and operationally, and we're very proud of its achievement especially its strong cost discipline,' he said. 'In 2013 we said our intention was for Iberia to breakeven in 2014 and it has fulfilled that promise.'

Sweetening the Aer Lingus pot

The firm also said it now has a very healthy cash pile of €4.9bn, which will come in handy should its €1.4bn takeover offer for Irish carrier Aer Lingus be accepted. Despite finally persuading the board of his former company to recommend the offer, however, there's no guarantee Walsh will get his way.

Echoing union opposition, the Irish state is wary of letting the larger airline gobble up its national carrier, fearing potential job losses and cutbacks both in Ireland's transatlantic routes and in Aer Lingus' runway space at Heathrow.

Given IAG's history of cost-cutting, these fears aren't unreasonable, and they matter too - the Irish state owns a 25% stake in Aer Lingus and has thus far blocked the bid. On Tuesday, Irish transport minister Paschal Donohoe said that while there had been 'some encouraging information' on jobs from IAG, 'clarity on the overall employment prospects on the basis of the proposals received is still needed'.

Donohoe wanted firmer details on the time frame for the increases in net employment around Dublin, and said that the current terms 'don't provide the basis' for the government to accept IAG's offer.

Walsh tried to assuage these fears on Radio 4 this morning. 'I have been very clear that there will be some back office jobs that will go but the net increase in employment will actually be quite significant,' he said. 'We see opportunities to expand in a significant way the Aer Lingus business on the transatlantic.'

Not exactly providing the clarity Donohoe wanted, is it? Significantly, Walsh hasn't addressed the issue of Aer Lingus' tenure of its Heathrow runway slots. Donohoe said Ireland 'requires a longer period' than the five years Walsh promised, but all Walsh had to say was that 'there would be discussions in due course'.

Walsh may have to sweeten this pot of gold (well, Euros) if he wants the Irish government to let go of Aer Lingus. Then again, maybe he won't. 'Europe's favourite airline' Ryanair is the other significant shareholder in Aer Lingus with 29%, and in theory IAG only needs one of the two to accept the offer.

While Ryanair boss Michael O'Leary might be reluctant to take the current deal as it is, after having tried and failed for years to get his hands of Aer Lingus himself, he may not have a choice. Ryanair is currently preparing an appeal to the British Supreme Court on 'human rights' grounds against a ruling forcing it to sell down its stake to 5%.

If Ryanair loses that fight, Walsh might get Aer Lingus whether the Irish state wants it or not.

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