IAG optimistic on profits as Iberia revamp starts to pay off

Reuters

* Sees 2013 operating profit of 740 million euros

* Q3 operating profit 690 mln euros versus 270 mln year ago

* Iberia on track for recovery

* Eyes Boeing's 777X jet

* Shares reach 52-week high

By Tracy Rucinski

MADRID, Nov 8 (Reuters) - Profits at British Airways ownerInternational Airlines Group more than doubled in thethird quarter thanks in part to a recovery at Spanish carrierIberia, paving the way for a bumper full-year earnings forecast.

Europe's third-biggest airline group by market value said onFriday restructuring at Iberia, which has suffered from labourdisputes and the loss of once-loyal Spanish consumers to budgetrivals during an economic slump, was beginning to pay off.

This added to a stand-out performance from IAG's low-costcarrier Vueling and summer strength in British Airways.

Shares in IAG, which have doubled over the past year, jumped6.3 percent to 371 pence, outperforming rivals Lufthansa and Air France and reaching a 52-week high.

IAG's performance contrasts with other European airlinessuch as Lufthansa and Air France-KLM which have had to cut jobsand revise growth plans to cope with rising costs and a weakeconomy. Even some budget carriers such as Ryanair havefound conditions tough.

"The airlines within the group are performing well,underlying market conditions remain unchanged, and the profittarget for the year indicates that we expect to be profitable,"IAG boss Willie Walsh told reporters.

IAG is targeting 2013 operating profit of around740 million euros ($990 million). The group had an operatingloss of 68 million euros in 2012.

Broker BPI said IAG's full-year operating profit target was14 percent above its estimates and 6 percent above consensus.

Walsh declined to update longer-term targets which he saidwould be provided at an investor day next week.

The company also said revenue growth would shift in 2014from yield to volume, which would effectively mean less emphasison pricing strategies thanks to expected higher volumes from newBA and Vueling route launches.

Revenues grew 6.9 percent in the third quarter to 5.4billion euros.

IBERIA TURNAROUND

Iberia remains a sore spot, however, and Walsh warned therewas still work to be done.

The impact of low-cost airlines and high-speed trains inSpain has hit Iberia's business hard during five years ofeconomic recession or stagnation.

"Iberia can't continue to have the costs it had when it wasalone in the market," IAG Chairman Antonio Vazquez said in aninterview on Spanish state broadcaster TVE on Friday.

Iberia must cut staff by 3,141 before 2015, and reduceaverage salaries and capacity by 15 percent and 14 percentrespectively as part of IAG's restructuring plan. It has cut1,737 employees so far, according to union data.

IAG's underlying operating profit was 690 million euros($923 million) for the three months to end-Sept, compared with aprofit of 270 million in the same period a year ago and beatinga company-supplied consensus forecast for 600 million.

Profit at Iberia rose to 74 million euros in the thirdquarter from 1 million in the same period a year ago, while BA'soperating profit surged 78 percent to 477 million euros.

Vueling made an operating profit of 139 million euros in itsfirst full quarter with the IAG group, which on Thursdayunveiled a board and management shake-up.

SIGHTS ON NEW MINI-JUMBO

Walsh said IAG was eyeing Boeing's newest jet, the 777X,intensifying the rivalry between Boeing and Airbus to secure big orders for fleet renewals.

"We've had discussions from time to time with Boeing ... webelieve (the 777X) represents an attractive proposition forairlines such as Iberia and BA," the CEO said.

Boeing has already sealed an order from Lufthansa for thepassenger jet, aimed to launch later this year, and is workingon deals with Gulf carriers.

IAG broke Boeing's long-held grip over BA's long-haul fleetwhen it ordered 18 Airbus A350-1000 for the British carrier inApril. It has said it was in talks with both companies to securemore planes.

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