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British Airways, Iberia swing to profit

British Airways and merger partner Iberia expect further growth in 2011 after improved demand for premium-class travel and strict cost controls helped the pair return to profit.


BA, whose merger with Spain's Iberia is set to complete in January, swung to a pretax profit of 158 million pounds ($251.6 million US) for the six months to Sept. 30 from a loss of 292 million in the same period last year.


Iberia returned to a nine-month profit of 53 million euros ($73.6 million US) after two years of losses.


"Both sets of numbers were well ahead of what was expected, which shows the recovery in the industry, especially in long-haul premium traffic, continues," Davy stockbrokers analyst Stephen Furlong said.


Peers Lufthansa and Air France-KLM this week raised their earnings expectations, citing improving revenues and robust bookings.


BA and Iberia's yields -- profitability per mile that a paying passenger travels -- jumped 17.2 and 7 percent respectively as businesses loosened the purse strings on their travel budgets.


First- and business-class travel -- the most profitable part of an airline's passenger business -- has increased steadily in recent months and both carriers said the outlook was positive.


The global economic crisis made companies cut travel costs, hurting airlines' profits, but now they are booking more of the pricier seats rather than cheaper seats at the back of planes.


"We've seen nothing to suggest that the recovery in premium traffic will not carry on," BA Chief Executive Willie Walsh told reporters on a conference call.


"We expect the trends of the last couple of months to continue, based on the visibility we have on forward bookings."




Shares in BA fell 3.3 percent to 271.5 pence while Iberia was trading 2.4 percent lower at 3.156 euros by 1130 GMT.


"Their shares have risen sharply this year because demand has exceeded supply but things will get more difficult next year so the merged entity will have to really deliver on the synergies they hope to deliver," said Furlong.


Airlines withdrew capacity during the recession as passenger numbers fell and have yet to fully restore it, sending fares up.  Analysts believe carriers will need to reintroduce capacity

gradually to protect profits.


Oddo Securities analyst Yan Derocles believed BA's future profitability hinged on "confidence in the maintaining of this trend given increased capacity."


BA intends to increase capacity by 4-5 percent next summer.


Iberia said it would boost capacity by about 3 percent in 2011 to meet growing demand for long-distance travel while pushing ahead with plans for a budget carrier for short- and medium-haul routes suffering from low-cost competition.


Strong premium-class ticket sales on long-haul routes, as well as solid performances from cargo businesses, boosted revenue at the pair, whose merger will create the world's third-biggest airline by revenue.


BA trimmed operating costs by 1.5 percent in the six months, while Iberia cut costs by 2.6 percent.


Global airlines have hiked their profit forecasts this year as the recession fades and traffic rises.


Industry body IATA, which this month said premium travel rose 9.1 percent in August, expects the industry to post a net profit of $8.9 billion, more than treble its previous forecast.


BA last posted a profit in August 2008, prior to the financial crisis triggered by the collapse of Lehman Brothers.


BA's Walsh said the increase in Britain's air passenger duty, which comes into force next week, would be "unhelpful." CTV Two CTV News CTV News Channel BNN - Business News Network CP24