October 26, 2018 / 6:23 AM / in 9 months

BA owner IAG withstands fuel price pressures to beat profit forecasts

LONDON (Reuters) - British Airways owner IAG (ICAG.L) on Friday posted an unexpected profit increase as strong demand in Europe helped shield it from rising fuel prices that have hit the industry.

FILE PHOTO - British Airways aircraft are seen at Heathrow Airport in west London, Britain, February 23, 2018. REUTERS/Hannah McKay

IAG, which also owns Aer Lingus and Iberia, beat consensus expectations of a fall in profits even as jet fuel prices increased beyond what the airline group had planned for.

“The fuel price is certainly higher than we had expected ... (but) the general trading environment is good,” Chief Executive Willie Walsh said, noting Europe had been especially strong without saying what destinations had been in particular demand.

“We’ve seen high oil prices before, and we know what to do.”

Shares IAG rose 2.2 percent to 600.56 pence by 0807 GMT, making them the top gainers in the FTSE 100 .FTSE and extending a rebound from Tuesday's 18-month low of 547p.

“Not only is the group adding more flights, it’s managing to fill more seats on its planes while also getting a benefit from pricing,” said George Salmon, analyst at Hargreaves Lansdown.

“Take out the impact of higher fuel prices and unfavourable currency moves, and it becomes clear IAG is doing some pretty impressive work on underlying operating improvements,” Salmon added.

IAG said profit for 2018 would increase by 200 million euros (178 million pounds), having previously said it would show an increase for the year without giving a figure.

Third-quarter operating profit before exceptional items reached 1.46 billion euros, ahead of a company-compiled consensus of 1.43 billion and up from 1.45 billion last year.

Fuel unit costs for the three months to Sept. 30 rose 15 percent at constant currency rates, IAG said, echoing comments on Thursday by budget airline Norwegian Air (NWC.OL), which rebuffed a bid from IAG earlier in the year.

Norwegian, which competes with British Airways on transatlantic routes, posted results which lagged estimates due to the higher fuel price.

Fellow Nordic airline Primera Air went bust earlier this month and Walsh said it was no surprise that smaller airlines which can’t hedge their fuel costs had gone out of business.

“I would expect to see more of this during the remaining part of this year and going into the early part of next year, given the fuel price where it is,” Walsh said.

He said there was nothing new to say in relation to IAG’s interest in Norwegian. In August he said IAG remained interested in buying Norwegian but there were no active discussions.

Walsh also declined comment when asked to estimate the cost of a theft of customer data at BA after IAG said on Thursday hackers may have stolen the personal information of a further 185,000 customers, taking the total number of payment cards potentially affected by the hack to 429,000. 8

Reporting by Alistair Smout; Additional reporting by Helen Reid; Editing by Paul Sandle and David Holmes

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