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IAG profit guidance is dropped after first quarter loss, but can it still reach its previous target?

Analysis

These are challenging times for IAG. The only one of the European Big Three to report a wider operating loss for 1Q2013 and to see net debt increase year-on-year, it also took significant new labour restructuring provisions in connection with Iberia. It has also dropped its previous ambitious target of exceeding 2011's EUR485 million operating profit in 2013 for the time being.

The first quarter operating loss was affected by two factors whose negative impact should fall away over the rest of the year: first, the lag between Iberia's capacity cuts and headcount cuts and, second, by a mirror image factor at British Airways, namely headcount increases ahead of the introduction of the A380 and 787 later this year.

Nevertheless, five years after the global financial crisis and more than two years into the British Airways/Iberia merger, IAG will need to show it can still match its previous 2013 profit target if it is to allay growing doubts over its ability to reach its 2015 goal of EUR1.6 billion in operating profit.

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