BA merger company profits take off

British Airways and merger partner Iberia posted combined half-year profits of 39 million euros (£34.2 million) today, despite a 35% jump in fuel costs.

International Airlines Group, which was formed in January, has benefited from improved demand on long haul routes, particularly for premium seats, as well as ongoing cost cutting measures.

Its fuel bill surged to 2.44 billion euros (£2.1 billion) in the six months to June 30, of which only half was recovered through initiatives such as fuel surcharges.

The airline's profit in the six months compared with a loss of 419 million euros racked up by the two airlines a year earlier.

Former BA boss Willie Walsh, who is chief executive of the combined group, said he expected "significant growth" in profits across 2011, despite strong competition on short-haul routes. He also expects events in Japan, North Africa and the Middle East to knock profits by up to 100 million euros (£87.7 million).

He added: "Against a background of economic uncertainty, London remains a strong market."

BA and Spain's Iberia have retained their brands in the merger, which is expected to save 400 million euro (£351 million) a year by its fifth year.

It is now the third largest scheduled airline group in Europe and the sixth largest in the world, based on revenues. The pair fly to more than 200 destinations on more than 400 aircraft and last year carried 55 million passengers.

IAG plans to expand aggressively and has reportedly drawn up a list of 12 other airlines it will consider buying.

Mr Walsh said the airline had already made savings through joint procurement in areas such as insurance and airport handling.

"Customers are also directly benefiting through airline website cross-selling, more fare and schedule choice on overlapping long haul routes and easier access to more destinations via new codeshares," he added.

Passenger revenues rose nearly 19% to 6.45 billion euros (£5.66 billion) in the half-year but IAG said it was evaluating some reduction in capacity growth for the winter.

Analysts said the results from IAG were better than expected.

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: "Wealthy and business customers are playing their part, while management is busy concentrating on cost synergies and removing controllable non-fuel related expenses.

"However, the challenges remain numerous. Fuel costs are still elevated, acts of terrorism have raised the cost of security, whilst geopolitical tensions and upheaval in the Middle East provide uncertainty over safety and passengers' desire to travel."