Last checked at 
* Upgrades 2015 profit forecast by over 20 pct
* Has cut costs, expanded into budget travel
* Shares hit record high (Adds background)
By Sarah Young
LONDON, Feb 27 (Reuters) - British Airways-ownerInternational Airlines Group raised its 2015 profitforecast by more than 20 percent, outperforming strugglingcontinental rivals and sending its shares to an all-time high.
IAG, which is trying to acquire Ireland's Aer Lingus, said on Friday that the profit increase would bedriven by cost control across the group and growth at its IberiaSpanish unit which until last year had dragged on the business.
Created by a merger in 2011, IAG prioritised cutting staffcosts before rival European flag carriers Lufthansa and Air France-KLM, and is seeing the benefits of apainful restructuring at Iberia, where it cut jobs and salaries.
IAG is also a step ahead of Europe's other traditionalairlines through its exposure to the continent's budget travelsector, having acquired discount carrier Vueling in 2013,enabling it to compete with Ryanair and easyJet.
"We expect Iberia to continue to improve its profitabilitygiven the trajectory that it's on. The performance to date forIberia has been tremendous and we expect that to continue in2015," Chief Executive Willie Walsh told reporters.
Shares in IAG, which before Friday had already soared 56percent over the last six months compared to a 1.6 percent risein Britain's bluechip index, earlier hit their highest everlevel before paring gains to trade up 3 percent at 577 pence.
"IAG remains our top pick amongst the European airlines. Ithas positive earnings momentum with a better trading performancethan its network carrier peers and it is showing clear benefitsfrom its restructuring efforts," Liberum analyst Gerald Khoosaid, reiterating a "Buy" rating.
Given its prospects, he said IAG's valuation on anenterprise value (EV) to core earnings (EBITDA) ratio warranteda premium rating and it should move further towards the level ofthe budget airlines.
Currently IAG trades on an EV to EBITDA ratio of 6.85according to Reuters data, trailing easyJet and Ryanair whichtrade on 9.28 and 10.10 respectively, but ahead of Air Franceand Lufthansa on 5.22 and 3.30.
BROADER STRATEGY
IAG's performance shows the benefits of its broaderstrategy. It benefits from involvement in long-haul travel,where it is enjoying strong demand on trans-Atlantic routes,balanced with exposure to fast-growing, budget short-haulflights.
Both Air France and Lufthansa, hit by strikes last year, aretrying to expand their low-cost operations at the same time asreducing costs in their main businesses, emulating IAG's movesover the last four years.
IAG is also getting an extra boost from economic growth inBritain and Spain, its two domestic markets.
Already the biggest European airline by marketcapitalisation, IAG could grow further by buying Aer Lingus.
But its 1.36 billion euro approach is yet to get the backingfrom the Irish government, which owns a 25 percent stake.
"We remain very interested in acquiring Aer Lingus and atthis stage we have nothing additional to add to what we'vealready said," Walsh said when asked about the deal.
IAG said for 2015 it now expected operating profit in excessof 2.2 billion euros, compared to the 1.8 billion euros it hadsaid it was targeting, the latest in a series of upgrades.
For 2014, it reported operating profit up 81 percent to1.390 billion euros. ($1 = 0.8910 euros) (Editing by Keith Weir)
