IAG's 1Q losses narrow. Discipline over capacity, capital and costs provides momentum

International Airlines Group significantly reduced its seasonal losses in 1Q2014. Iberia cut its operating loss almost in half and British Airways came within touching distance of breakeven. Vueling kept its 1Q loss more or less unchanged, in spite of rapid capacity and revenue growth. IAG's unit cost reduction outstripped a dip in unit revenue; and labour productivity improved across all three airlines.

Iberia's restructuring is starting to pay off and it will return to capacity growth from 2Q2014 after cuts in 2012, 2013 and 1Q2014. BA has integrated its first A380 and Boeing 787 aircraft and has more deliveries to come. Together with its A350s on order, this should help it to make further improvements in the cost efficiency of its long-haul fleet.

The airline sector globally is in a cyclical upswing and this is helping to drive better profits for almost everyone. However, it does seem that IAG is achieving a structural improvement in its profitability as a result of strong discipline over capacity, capital and costs and a firm stance on labour productivity. More than its European legacy peers, the momentum is with IAG.