IAG confident of profitability in 2011 despite high fuel costs

04 November 2011 15:44  [Source: ICIS news]

LONDON (ICIS)--The International Airlines Group (IAG) are confident it will deliver higher year-on-year profitability in the fourth quarter, despite robust jet fuel prices, it said on Friday.

Fuel costs for the nine-month period to 30 September 2011 were up by 28.5% year on year to around €3.75m ($5.21m), the group said.

Furthermore, fuel costs in the third quarter alone were up 23.7% from the same period in 2010, while non-fuel costs were flat.

“Our revenue is up by 2.2% in the quarter, driven primarily by volume. However, high fuel costs continue to have a significant impact on our business,” said Willie Walsh, IAG’s chief executive.

According to ICIS, jet fuel cargoes are currently trading at price levels of $1,024-1,026/tonne CIF (cost insurance freight) NWE (northwest Europe).

Outright jet fuel prices - calculated by adding ICE gasoil values to jet fuel differentials - had fallen to levels as low as $949/tonne CIF NWE during early October because of lower ICE gasoil figures on the back of concerns over the eurozone economy.

However, since then prices have climbed as European leaders work to resolve the debt issues in the region, which had led to firmer crude oil and ICE gasoil values.

While the European debt crisis exerts its influence on jet fuel prices, it has further connotations for the aviation industry, notably the possibility of decreased demand for air travel as consumers slash travel budgets.

“The main challenge of 2012 will be to offset increased fuel costs as our hedges unwind, against a background of potentially weaker demand,” Walsh said.

However, IAG remains positive about group profitability during the fourth quarter and for 2011 as a whole.

“Given the disruption and non-recurring accounting items in the fourth quarter of 2010, we are confident of a higher level of profitability [in the fourth quarter of] this year, even after the negative impact of the high fuel price. We expect to deliver a 2011 full-year operating profit of around double the year 2010 profits,” Walsh added.

($1 = €0.72)

By: Sarah Trinder
+44 20 8652 3214

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