February 23, 2018 / 7:15 AM / a year ago

British Airways parent IAG confident on outlook but fourth quarter disappoints

LONDON (Reuters) - British Airways owner IAG expressed confidence about 2018 on Friday and pledged more cash for shareholders but a fall in fourth-quarter profit sent its shares lower.

The airline group said it expects to add seats this year to take advantage of strong travel demand while keeping costs under control.

But the last three months of the year were worse than expected, and plans to expand capacity by 6.7 percent came amid worries that airlines are growing too quickly and will struggle with costs as rising oil prices boost their jet fuel bills.

IAG shares were down 4.5 percent at 595 pence at 0955 GMT, which analysts at Goodbody attributed to IAG’s worse-than-expected fourth quarter.

Its quarterly operating profit fell 6 percent, a decline which IAG put down to changes in employee bonus provisions. Its non-fuel unit costs rose 0.5 percent.

IAG, which also owns Iberia, Vueling and Aer Lingus, said it expected to increase profit and passenger unit revenue this year while reducing costs.

“The important thing for us, which I think sets us apart from a lot of our competitors, is we’re looking at (capacity) growth of 6.7 percent but with unit revenues improving off the back of that growth,” CEO Willie Walsh told reporters.

But some analysts were not convinced.

“IAG’s outlook for a positive unit revenue environment in 2018 runs counter to our own analysis of the current sector outlook,” Bernstein analyst Daniel Roeska said.

Shares in rival Air France-KLM fell earlier this month over worries about its ability to reduce costs.

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Ryanair CEO Michael O’Leary has said he doesn’t share rivals’ optimism over unit revenue this year.

For the full year, IAG reported a 19 percent rise in operating profit before exceptional items to 3.02 billion euros and announced the return of an extra 500 million euros to shareholders.

Reporting by Sarah Young; editing by Paul Sandle and Jason Neely

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