SPAIN’S economic crisis and the “deep and structural” problems of its main airline have plunged the owner of British Airways into the red.
A further rise in fuel costs added to the pain as International Airlines Group (IAG) – formed from the 2011 merger of BA and Iberia – posted operating losses of £199m for the six months to June 30, compared with profits of £69m a year earlier.
While steady trading conditions helped BA make an operating profit of £10.2m, Iberia’s losses deepened to £206.9m.
IAG had been expecting to break even this year, but with the debt-laden Spanish economy expected to contract it is now forecasting a small operating loss for 2012.
Chief executive Willie Walsh said there was a “stark difference” in the performance of the two subsidiaries.
He is working on a restructuring plan for Iberia, which is likely to include short-term downsizing and network reshaping. He warned that job cuts are inevitable.
Mr Walsh said: “Iberia’s problems are deep and structural and the economic environment reinforces the need for permanent structural change.”
Iberia generates 27% of the group’s turnover, with half of this coming from Spain, while British Airways derives only around 5% of its revenues on routes to Italy, Spain, Portugal and Greece.
Meanwhile, soaring fuel costs and rising taxes took their toll on Virgin Atlantic as the airline slumped to an underlying loss of £80.2m.
The group founded by Sir Richard Branson said passenger numbers grew 2% to 5.4 million in the year to February despite “an incredibly difficult market” after it was boosted by a new route between Manchester and Las Vegas and more frequent flights to the Caribbean.
But the long-haul specialist was pushed into a loss, compared to a profit of £18.5m the previous year, as it struggled to pass on “sky high” fuel prices, which rose an average of 32% in the year.
This was made more difficult by rises in air passenger duty – a so-called green tax on aviation – which further pushed up the cost of flying. Virgin said its fees through the duty rose 25% to £195m in the year.
It is believed to be only the third time in the airline’s 28-year history that it has slipped into the red.
The last occasion was two years ago when it was hit by the financial crisis.