IAG admits its fuel bill is going up while fares are coming down

Owner of British Airways hit by currency woes but first-half profits take off

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British Airways’ owner, IAG, is set to get dragged deeper into the airline price war this summer, even though the company’s fuel bill is rising due to the weak euro.

Willie Walsh, the chief executive, said: “Consumers are clearly benefiting as a result of falling oil prices, although in fact our own fuel bill has gone up.”

He explained that because the airline group buys its fuel in dollars but trades in euros, it is suffering due to the currency’s collapse amid the crisis in Greece.

All European airlines are braced for a fare war led by BA’s arch-rival, Ryanair, which has pledged to lower flight prices by around 8 per cent. However, both are better placed than rivals such as Air France and Lufthansa because they have already cut their costs significantly.

Mr Walsh was speaking as IAG, which also owns Iberia and will shortly complete its £950m takeover of Aer Lingus, reported a 141 per cent jump in first-half operating profits to €555m (£389.8m). Mr Walsh said this was despite a  €135m rise in fuel costs.

He also warned that the profit improvement is likely to be weaker in the second half but said the group was on track to meet its full-year forecast of operating profits of at least  €2.2bn.

Mr Walsh explained that the improvement came in part from an 11.6 per cent increase in revenues to  €10.4bn, and also from pushing down employee and supplier costs.

He admitted: “We are putting the squeeze on our suppliers, but the improvement in employee costs comes from the restructuring we have successfully brought through at Iberia.”

As a result, IAG announced its first expansion at the Spanish flag carrier, with new, long-haul routes, particularly to the Far East. Mr Walsh said this meant Madrid airport, already Europe’s biggest hub for Latin American flights, would become a “bridge” between there and the Far East.

Mr Walsh also described the potential cost of a third runway at Heathrow, which was recently approved by the Airports  Commission, as “outrageous.”

“I am not sure the third runway at Heathrow will ever be built,” he said. “Airlines and consumers are looking for lower costs when it comes to flying but airports only seem to be looking at higher costs.”

IAG announced it has acceptances from 63 per cent of Aer Lingus shares for its takeover bid, which, with the 25 per cent pledged by Ryanair but not yet delivered, means it has almost 90 per cent. Mr Walsh said he expects Ryanair to sell its shares to IAG by the middle of next month and the bid has gone unconditional.

It will bring to an end a nearly decade-long saga, with both IAG and Ryanair trying to buy the Irish flag carrier, and IAG must ensure that a certain number of flights between Heathrow and Dublin remain.

The company also revealed that passenger numbers were up nearly 9 per cent in the six months to 38.6m people.

Losses at Iberia were virtually wiped out, down to €4m compared with a €95m loss in the same period last year.

However, Vueling, IAG’s low-cost Spanish airline, slipped to a €5m loss – compared with breaking even this time a year ago.