IAG slips into losses, targets immediate bounce-back. But further austerity will be needed all round

Reversing the rising trend that began before the 2011 merger of British Airways and Iberia, IAG slipped back into losses in 2012. Quite simply, unit costs grew faster than unit revenues. Iberia's losses widened again and BA's profits declined. Labour productivity, a key factor in airline profitability, fell in 2012. This was partly due to the integration of bmi and also to capacity cuts at Iberia being implemented ahead of headcount reductions, but 2013 will need to see an improvement in this area.

In 2013, IAG plans a capacity cut of 1.9% with Iberia capacity down 10% to 15% and BA capacity up around 2%, fuelled by its first A380 deliveries. The Iberia capacity cuts, together with a planned workforce reduction of 3,800, are the subject of a bitter dispute with labour unions in Spain. Management's ability, or otherwise, to see its plans through will be a defining feature of the year ahead.

IAG's bullish target to exceed 2011's EUR485 million operating profit in 2013 will depend on this, regardless of whether or not Vueling fully joins the group this year.