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LONDON (Alliance News) - International Consolidated Airlines Group PLC Friday reported strong growth in 2014 operating profit as fuel costs fell and its Spanish airline Iberia swung to a profit, and said it expects further strong profit growth in 2015.
The parent company of British Airways and Spanish airlines Iberia and Vueling, which is also trying to acquire Irish flag carrier Aer Lingus PLC, reported a closely-watched operating profit excluding exceptional items of EUR1.39 billion for 2014, up from EUR770 million a year earlier, as revenue rose 8.0% to EUR20.17 billion. Its net profit rose to EUR1.00 billion, from just EUR147 million in 2013.
For the fourth quarter, it reported an operating profit excluding exceptional items of EUR260 million, up from EUR113 million in the fourth quarter of 2013, as revenue rose 9.9% to EUR5.02 billion.
Its fuel unit costs for the year as a whole fell 7.8%, while non-fuel unit costs before exceptional items were down 1.9%.
Spanish airline Iberia, which has been the focus of the group's non-fuel cost-cutting efforts, swung to an operating profit of EUR50 million, compared with a loss of EUR166 million in 2013. British Airways, which was restructured previously to bring down the cost base, powered ahead with operating profit rising to EUR1.22 billion, from EUR762 million in 2013. Vueling's operating profit rose to EUR141 million, from EUR139 million.
"We achieved a strong unit cost performance, down 4.1 per cent, through increased productivity, supplier cost savings and lower fuel unit costs. The latter was boosted by the introduction of more efficient aircraft into our fleet and lower fuel prices in the last quarter of the year. However, the positive effect of the oil price reduction has been partly offset by hedging and significant currency impact," Chief Executive Willie Walsh said in a statement.
Airlines have been given a big lift by the steep fall in oil prices to about USD60 a barrel, from over USD115 a barrel last June. However, most airlines hedge a proportion of their forward fuel needs and so much of the benefit has still to be felt.
IAG is expecting its 2015 operating profit to grow to more than EUR2.2 billion, with total fuel costs coming in at about EUR5.9 billion, down from nearly EUR6.0 billion in 2014. That assumes it will also increase capacity by about 5.5% this year.
IAG isn't currently paying a dividend.
It didn't provide any further details about its bid to acquire Aer Lingus.
Earlier this week, Aer Lingus, which is backing the EUR1.36 billion takeover big from IAG, reported that it swung to a pretax loss in 2014 as it made a large one-off payment into its pension scheme, although operating profit rose as it reported growth in passenger numbers and average fares.
Its passenger numbers rose to nearly 9.8 million, from 9.6 million in 2013, while average fare revenue per seat increased to EUR98.93, from EUR90.43. Average fare revenue per passenger rose to EUR131.17, from EUR121.62. Air Lingus' outgoing Chief Executive Christoph Mueller said the airline would now focus on cutting costs having got its pension scheme issues out of the way. It has introduced a voluntary severance scheme.
"To enhance these excellent results and to accelerate Aer Lingus' growth, it is the board's strong belief that the company should now take the opportunity to combine with IAG. In this combination Aer Lingus will operate as a separate business while gaining access to IAG's extensive network and benefiting from its scale. These significantly positive benefits will de-risk Aer Lingus' future, strengthen its operations and enhance the future success of the company," Chairman Colm Barrington said at the time.
IAG's bid now needs to get the backing of the Irish airline's two largest shareholders, the Irish government and rival airline Ryanair Holdings PLC. It will also need the support of unions, and would likely face regulatory scrutiny.
Ryanair is being forced to sell most of its 29% stake in Aer Lingus by anti-trust regulators. The stake was built up during the low-cost airline's previous attempts to acquire Aer Lingus. Meanwhile, IAG has been engaging with the Irish government to persuade it of the merits of a deal, pledging to keep Aer Lingus' identity and to protect key routes.
IAG got a major new investor itself last month, when Qatar Airways took a 9.99% stake in the company, a move the Middle Eastern airline said was a push to strengthen the existing commercial ties between the two carriers.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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