IAG returns to profit

With recessionary conditions easing in the Eurozone, Vueling reported €168m in operating profit since being snapped up last April. Although sister-business Iberia is still losing money, it cut its operating losses to €166m. Its lengthy restructuring process has involved suspending unprofitable routes and shrinking the fleet by 23 aircraft.

Again, however, IAG’s success lay mainly with British Airways (BA). Despite bumping up capacity by 2 per cent and adding two new aircraft types to its fleet, the UK carrier flew fewer empty seats last year. Combined with cost-cutting and the benefit of additional slots at Heathrow from the integration of old BMI routes, this more than doubled operating profit to €762m.

Solid performances from BA and Vueling suggest the company remains on track to achieve its operating-profit target of €1.8bn by 2015. Last year's figures met market expectations, but the bigger question is whether the rate of improvement can continue into 2014.

The company will have to rely on a resilient North American market - currently the strongest in terms of capacity utilisation, or 'passenger load' in the jargon – as well as a recovery in Europe. IAG also hopes to minimise disruption at BA via the introduction of a new customer-management system aimed at streamlining passenger check-in and aircraft loading.

But the company will have to tread carefully to avoid a costly clash with workers, having cut thousands of jobs and reduced remaining staff’s wages. Increasing landing charges at Heathrow are a further head-ache.

Brokerage Goodbody expects EPS of 49.4ȼ this year - a drastic improvement on the 6.6ȼ earned in 2013.