Airline group IAG profit rises on Iberia recovery

By Tracy Rucinski

MADRID (Reuters) - British Airways owner International Airlines Group (ICAG.L) reported a 55 percent rise in second-quarter profit driven by a recovery at Spanish airline Iberia and signalled its confidence in the carrier with plans to renew its long-haul fleet.

Iberia, which has undergone a deep restructuring to cut staff and costs, will start receiving eight Airbus A350-900s and another eight A330-200 aircraft next year, IAG said on Friday.

The Spanish airline swung to a second-quarter operating profit from a year-ago loss and is on track to return to profit for the full year for the first time since 2008.

"This performance shows that we are making further solid progress," IAG Chief Executive Willie Walsh told reporters.

IAG, Europe's second-largest airline by market value, stuck to its annual profit target, unlike rival former state-owned carriers Lufthansa (LHAG.DE) and Air France-KLM (AIRF.PA) which have both issued profit warnings in recent weeks.

The group aims to increase 2014 operating profit by at least 500 million euros (397 million pounds) from the 770 million euros it made last year.

Its outlook shows IAG is weathering an increasingly competitive European airline market better than peers, helped by low-cost Spanish airline Vueling which it acquired last year.

Lufthansa (LHAG.DE) and Air France-KLM (AIRF.PA) have said they are focussing on ramping up their presence in Europe's low-cost short-haul market, dominated by easyJet (EZJ.L) and Ryanair (RYA.I).

"We think this update provides relief. IAG is not immune from the pricing pressures of industry capacity expansion, but structurally it is better protected," Jefferies said in a note to clients.

IAG shares, which have fallen 19 percent over the last three months, were down 0.3 percent at 0948 GMT (10.48 a.m. BST), outperforming a 1.3 percent fall in the FTSE 100 index (.FTSE) of blue-chip stocks.

Second-quarter operating profit before exceptional items rose to 380 million euros, ahead of a company-supplied consensus forecast of 354 million euros.

CAPACITY DISCIPLINE

IAG said it would trim around three percentage points off capacity across its network for the winter season, mainly due to slower than expected growth on Transatlantic routes.

"We continue to see it as a growth market but we're going to adapt our capacity to better match the rate at which the market is growing," Walsh said.

BA's operating profit rose 34 percent to 332 million euros in the quarter, while Iberia made an operating profit of 16 million euros versus a loss of 35 million euros last year. Vueling's operating profit rose 11 percent to 30 million euros.

Iberia said on Friday it was starting to sell its stake in technology company Amadeus (AMA.MC), held through derivatives, in a deal that will generate capital gains.

(Reporting by Tracy Rucinski; Editing by Erica Billingham)