Iberia H1 Loss Narrows, Demand Recovers

August 27, 2010

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Spain's Iberia posted a narrower than expected first-half operating loss on Friday as improving business travel and air cargo demand countered the negative impact of a volcanic ash cloud in April.

Iberia, which plans to merge with British Airways before the end of the year, said it had lost EUR€72 million (USD$92 million) in the six months to end-June.

"Aside from the expected recovery in traffic demand, what really drove these positive results was the significant improvement in yields," said Elena Fernandez, analyst at Spanish brokerage Ahorro Corporacion.

Iberia's yields, the revenue made on each passenger for every mile travelled, rose 7.8 percent in the six month period.

Iberia estimated about EUR€20 million of losses from disruption to air travel from a volcanic ash cloud that drifted across Europe from Iceland in April, but analysts said the real impact may not have been all bad.

"They were also able to sell more expensive tickets during that time," Fernandez said.

Iberia posted profits at both the net and operating levels in the second quarter, breaking six consecutive quarters of losses.

Merger partner BA as well as European rivals Air France and Lufthansa have said they expect to break even at the operating level in 2010.

Revenue rose 2.8 percent to EUR€2.23 billion in the six-month period, underpinned by a recovery in business class and cargo traffic, while net losses narrowed to EUR€21 million as the airline continued to implement strict cost controls.

In its results statement, Iberia said the main challenge for the rest of the year continues to be the pace of the global economic recovery.