IAG back in profit. British Airways' profit doubles, Iberia losses narrow & Vueling shows its worth

IAG returned to profit in 2013 after a dip into red ink in 2012. The improved results were driven mainly by unit cost reduction and by a first contribution from LCC Vueling after its acquisition on 26-Apr-2013. The group's operating profit of EUR770 million was better than the target of EUR740 million set in Nov-2013 and broadly in line with analysts' forecasts. It was much better than the target set in early 2013, before the Vueling acquisition, to beat 2011's EUR485 million. Deducting Vueling's contribution, the like for like operating result was EUR602 million compared with a EUR23 million loss in 2012.

Inevitably, challenges remain. IAG must implement its new labour agreements with Iberia pilots and cabin crew and conclude negotiations with Iberia ground staff. It must manage BA's long-haul expansion and switch to higher gauge aircraft, while retaining control of its costs. Regarding Vueling, the key will be to allow it to keep its independence and low-cost culture, while allowing it to pursue its rapid growth.

The signs are growing that IAG can meet these challenges.