Eurozone headwinds blow IAG off target

The owner of British Airways and Iberia fired off a dramatic profit warning yesterday after the eurozone crisis battered demand for seats at its Spanish arm and sent the cost of fuel soaring.

Shares in International Consolidated Airlines Group fell 4 per cent as the chief executive, Willie Walsh, admitted the business would not break even, as previously forecast, but post a loss for this financial year.

"It's a tale of two companies," Mr Walsh said. "British Airways did reasonably well but Iberia performed poorly and needs the type of restructuring that BA went through a few years ago. It is being hit by the very weak economic environment in Spain, and the weakness in the euro means that the cost of its fuel has effectively remained the same despite the oil price coming down."

IAG posted a €390m (£307m) loss for the six months to July, after making a €39m profit in the same period last year. While BA made a €13m operating profit, stripping out the cost associated with buying rival bmi earlier this year, that was more than wiped out by Iberia totting up a €263m operating loss.

Mr Walsh, who faced years of disputes and strikes with the Unite union over his restructuring plans at BA, yesterday set out plans for a "major restructuring" of Iberia. He said: "We are undertaking a fundamental review of every aspect of business at Iberia. It is inevitable that there will be job cuts. Some routes may go, too.

"We were previously targeting a break-even operating result this year… however, in the light of the Spanish macro headwind, we now expect to make a small operating loss in 2012," Mr Walsh added.

But he maintained that he had no regrets about buying a major Spanish business just before the country's economy collapsed.

"We knew there were challenges in Iberia, and the economic environment has accelerated the need to tackle them," he said.