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* IAG keeps profitability targets but profit growth to slow
* Airline group has cut capacity growth for current year
* BA CEO says progress made in resolving pilot dispute
(Adds CEO, CFO comments, Walsh retirement plans)
By Alistair Smout
LONDON, Nov 8 (Reuters) - British Airways owner IAG
scaled back its three-year capacity growth forecast on Friday,
hitting its earnings per share outlook but protecting its
margins in the face of a weak global economy and a highly
competitive marketplace.
"We're well-prepared for anything that comes at us. We've
seen a softening economic environment, and therefore we're
adjusting our growth plans," IAG Chief Executive Willie Walsh
told analysts during a capital markets briefing.
The airline industry has struggled to maintain margins in
the face of industry overcapacity and a muted economic outlook,
which has produced fierce competition over ticket prices.
Germany's Lufthansa has said slower capacity
growth at rivals was providing relief, with Ryanair set to grow
at its slowest rate in seven years in the year to March 31,
2021.
"We still see growth ... but we're moderating our growth.
Even in that environment ... we will be generating very
significant amounts of cash to be able to ensure that our
shareholders get rewarded for their faith," Walsh added.
Although Walsh was presenting mid-term targets, he is likely
to leave before the end of the period as the long-serving CEO
confirmed he plans to retire by October 2021.
"I still love what I do, but my intention is to be retired
within the next two years," Walsh said.
IAG, which has cut its outlook for capacity growth in 2019
as the year has progressed, estimated available seat kilometres
will grow by 3.4% a year between 2020 and 2022. It had
previously forecast 6% annual growth for 2019-2023.
TOO MUCH CAPACITY
The owner of Iberia, Aer Lingus and Vueling, said the
capacity growth cut would lower its forecast for earnings per
share (EPS) growth to 10%+ a year from 12%+ a year.
However, it reiterated its targets for operating profit
margins of 12-15% and return on invested capital, and shares
recovered from a steep early fall to trade just 0.2% lower.
Chief Financial Officer Steve Gunning said IAG had probably
had too much capacity in the market in first quarter, adding
that there would be no growth at Vueling next year.
IAG has also taken a hit from pilot strikes at British
Airways, which has knocked its profit outlook, but it said the
forecasts for capacity growth were not adjusted for these.
Although the dispute over pay remains unresolved, there is
no further industrial action scheduled and British Airways CEO
Alex Cruz said that people could look forward to Christmas.
IAG's strategy update comes after it said on Monday it would
buy Spain's Air Europa to boost its presence on routes to Latin
America and the Caribbean.
IAG said it expected the deal, which will be funded through
external debt, to close in the second half of 2020 and for it to
add to its earnings in the first full year after closure.
(Reporting by Alistair Smout; Editing by Dale Hudson and
Alexander Smith)
