IAG set profit target; say merger savings will be bigger
12.11.11
British Airways parent IAG said yesterday that it expects higher profits over the next four years as it deepens savings from a merger with Spain’s Iberia and taps its alliance with American Airlines. The company raised its profit target for 2015 to €1.5bn (£1.3bn), increased the savings made by combining BA with Spain's Iberia from €400m to €450m per year and said it expects its transatlantic partnership with American Airlines to deliver at least €150m.
IAG, which had pro forma earnings of €225m in 2010, said there will also be a €400m increase in underlying profit, plus gains of €150m from organic growth, €250m from introducing more efficient planes and €100m each from creating low-cost unit Iberia Express and from hub improvements at Madrid’s Barajas airport. It is also targeting a return to an investment-grade credit rating, something lost in 2009, with debt currently ranked BB- at Standard & Poor’s, the third- highest junk level.
Capital expenditure will amount to €7.65bn through 2015, including the current year, with about two-thirds of the total dedicated to fleet replacement and growth. The company will add a net 28 planes for a total of 372 by 2015 after the delivery of 53 new jets, mostly to BA.
Profit will also be boosted by a €30m benefit from moving to a mixed fleet at BA, in which some planes are staffed by cabin crew on new contracts. It estimates costs from implementing the European Union’s carbon emissions trading program at €90m in year one.
The group said it expects fuel costs to rise by around 14 percent in 2012 but sees flat non-fuel costs. It will increase capacity by 2.5 percent in 2012 and expects capacity to grow by the same number each year up to 2015.
IAG last week said it had reached an initial agreement to buy BMI to boost growth at its Heathrow hub. although this still has some hurdles before it can be completed. It has also been linked to Portugal's TAP.
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