British Airways owner IAG's profits surge despite IT meltdown

The owner of British Airways reported a sharp jump in first half profits, beating analysts' estimates as it shrugged off an IT glitch that left tens of thousands of passengers stranded in May.

In the six months to the end of June, International Consolidate Airlines Group (IAG) saw operating profit before exceptional items rise 37% year-on-year to €975m (£871m), thanks in part to a strong performance over the Easter period and ongoing low fuel prices.

Pre-tax profits were 28% higher than in the corresponding period a year earlier to €706m, while revenue climbed 0.9% to €10.9bn.

"The underlying trend in unit revenue improved, benefitting partially from Easter and a weak base last year," said group chief executive Willie Walsh, as he commented on a "very strong" performance.

"Non-fuel unit costs before exceptional items are up, at constant currency. These costs include the financial impact of the power failure which affected British Airways' customers."

The IT meltdown that caused travel chaos for tens of thousands of British Airways passengers over the May Bank Holiday weekend cost the company €65m, while the pound's depreciation translated into a €44m hit.

The airline giant, which also includes Aer Lingus, Iberia and Vueling, added the number of passengers increased by 4.6% in the six-month period, while the load factor - a crucial gauge in the industry which measures the amount of seats filled per plane - rose one percentage point to 81%.

IAG said it performed well in North America and Europe, its largest markets, while British Airways remained the biggest contributor to profitability, accounting for €741m (£663m).

Meanwhile, Level, the new low-cost, long-haul venture which flies from Barcelona to Los Angeles, Oakland, Buenos Aires and Punta Cana in the Dominican Republic, performed better than expected.

"We've ordered three additional aircraft and are considering other European bases for the operation," said Walsh.

Launched in June, Level is seen as IAG's response to the growing threat posed by Norwegian, which has expanded its transatlantic routes.

Unlike its budget counterparts, IAG has not been forced to cut prices in a bid to keep planes full amid growing capacity, said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"With its long haul focus that's not a problem for IAG, and the group actually expects second half revenue per passenger to improve. The result is that while rivals are seeing the gains from lower fuel prices frittered away in an aggressive price war, at IAG they're dropping through to the bottom line and profits are taking off.

"However, IAG's own capacity growth looks cautious rather than jubilant, and combined with a rapidly falling debt pile could suggest the group is buckling in for turbulence ahead."