IAG profitability

IAG, the owner of British Airways saw shares climb after Moody’s upgraded the carrier’s rating because of improved earnings.

IAG Logo

IAG Logo

British Airways had its Moody’s rating upgraded by one level from B1 to Ba3, marking the company as less of a credit risk, after posting strong first quarter profits on Friday.

Moody’s said the rating reflected British Airway’s strong performance in 2013, when the carrier’s revenue rose 5.5pc to £11.4bn.

“We are upgrading BA’s ratings mainly because of materially improved earnings in 2013 as well as our expectation of further improvements over the next two years”, said Sven Reinke, a Moody’s vice president senior analyst.

But, Moody’s said the weak performance of IAG’s Spanish airline, Iberia, affected the rating.

“While we continue to assess BA on a standalone basis, we nevertheless take into consideration the weaker operating performance at Iberia compared with BA’s performance.

“While we recognize the legal separation of the two entities, we will continue to assess the ongoing restructuring initiatives at Iberia and the extent to which these could, over time, impact BA’s own financial profile, if at all”, said Mr Reinke.

On Friday, IAG said Iberia had almost halved its operating losses in the first three months of the year to 111m euros (£90.4m), down from 202m euros (£165m) during the same period in 2013.

International Airlines Group which owns British Airways and Iberia slid lower after a Morgan Stanley update.

IAG Logo

IAG Logo

Morgan Stanley is, overall, fairly positive on the group with an overweight rating on the shares. But it removed IAG from its Europe Best Ideas list, preferring budget airlines in the short term.

Morgan Stanley expects low cost carriers such as Ryanair to outperform IAG in the near term.

IAG, the owner of British Airways, on Friday posted a pre-tax profit from continuing operations, after exceptional items, of £186m, a significant turnaround from making a big loss last year. Total revenue grew 3.1%, despite a near 12% decline in cargo revenue. Passenger revenue grew almost 6%.

IAG Logo

One of the reasons for the return to profitability has been the reduced losses at its Spanish airline, Iberia, and the acquisition of the budget carrier, Vueling.

Iberia A330

Iberia – profitable soon?

Willie Walsh, IAG’s chief executive, said Britsh Airways has also benefited from cost improvements and the additional Heathrow take-off and landing slots it acquired through its 2012 takeover of the loss-making UK carrier, BMI.

British Airways made a large operating profit for the 12 months to December 31, and Iberia, while remaining in the red, reduced its losses. Vueling has made an operating profit since April.


Mr Walsh said: “In 2013, we strengthened the group by acquiring Vueling, embarking on Iberia’s transformation and enhancing British Airways’ revenue performance. This has led to a strong financial recovery and return to profitability.”

The company expects to make “steady progress” this year towards its target of generating a group operating profit of approximately £1.5bn by the end of 2015.

Mr. Willie Walsh

Willie Walsh

Willie also said “I think the report is excellent, the commission has done some really good work. The problem is political, the failure to embrace the findings of the report. I don’t see any sign that politicians have changed their view,” “I think the politicians will try to avoid this issue and they’ll be sitting here in several years debating this issue and we’ll be losing ground. The economy will suffer as a result of lack of runway capacity in general,”.

Amazingly, the last full-length runway in the South East of England was opened in 1946.