IAG plans personnel cuts at Iberia after a second quarter loss

International Airlines Group-IAG (London) (British Airways and Iberia) is planning to do a full review at Iberia next month after the Spanish unit forced the group into a second quarter loss.

Willie Walsh, IAG chief executive, made the following comments:

“We made an operating loss of €4 million in the quarter, including €50 million of bmi losses, before exceptional items. While our revenue performance was good, up 11.5 per cent, this was countered by an increased fuel bill of €314 million, a rise of 25.1 per cent.

“For the half year, we made an operating loss of €253 million, before exceptional items, with revenue up 9.8 per cent and fuel costs up 25.0 per cent.

“Our synergies programme continues apace and we remain on track to deliver our 2012 targets and €500 million annual benefits by 2015.

“While we have made specific investments for longer term commercial benefits such as the Olympic sponsorship and Master brand advertising at British Airways and the development of our Avios frequent flyer currency, we remain focused on stringent cost control across the Group.

“bmi restructuring costs accounted for most of the €38 million of exceptional items. These costs and the airline‟s losses are in line with our expectations. The integration of bmi mainline into British Airways is going well with completion due by the year end.

“There remains a stark difference in the performance of our subsidiaries. British Airways made an operating profit despite rising fuel prices while Iberia‟s losses deepened.

“Iberia‟s problems are deep and structural and the economic environment reinforces the need for permanent structural change. We are currently working on a restructuring plan for Iberia which we anticipate will be finalised by the end of September. This is likely to include short term downsizing, network reshaping to deliver higher unit revenues and a re-evaluation of all aspects of the business to deliver competitive costs and service to enable long-term profitable growth. Inevitably, we will not be able to avoid job losses as part of this process.

“There has been an excellent start made by Iberia‟s new cost effective subsidiary Iberia Express, which was profitable in its third full month of operation in June and has established an exemplary operating performance from Madrid Barajas.”

Trading outlook:

A number of factors have improved over the past three months. Underlying British Airways trading conditions remain firm and bmi integration is on track, but any benefit from an easing of fuel prices has been more than offset by the deterioration in Spanish economic conditions.

We were previously targeting a break-even operating result this year, after the impact of restructuring costs and the short term earnings drag from the bmi acquisition. However, in the light of the Spanish macro headwind, we now expect to make a small operating loss in 2012.

The Iberia restructuring plan could lead to further restructuring costs in the latter part of the year.”