British Airways-owner International Airlines Group (>> International Consolidated Airlines Grp) increased its 2015 profit forecast by more than 20 percent, outperforming weaker continental rivals and sending its shares to an all-time high.
IAG, which is trying to acquire Ireland's Aer Lingus (>> Aer Lingus Group Plc), said on Friday that the profit increase would be driven by cost control across the group and growth at its Iberia Spanish unit which until last year had dragged on the business.
Created by a merger in 2011, IAG prioritised cutting staff costs before rival continental flag carriers Lufthansa (>> Deutsche Lufthansa AG) and Air France-KLM (>> Air France-KLM), and is seeing the benefits of a painful restructuring at Iberia, where it cut jobs and salaries.
IAG is also a step ahead of Europe's other traditional airlines through its exposure to the continent's fast-growing low-cost sector, having acquired discount carrier Vueling in 2013, enabling it to compete with Ryanair (>> Ryanair Holdings plc) and easyJet (>> easyJet plc).
"We expect Iberia to continue to improve its profitability given the trajectory that it's on. The performance to date for Iberia has been tremendous and we expect that to continue in 2015," Chief Executive Willie Walsh told reporters on a call.
Shares in IAG, which before Friday had already soared 56 percent over the last six months compared to a 1.6 percent rise in Britain's bluechip index, climbed 4.7 percent to 586 pence at 0905 GMT, having earlier hit their highest ever level.
"IAG remains our top pick amongst the European airlines. It has positive earnings momentum with a better trading performance than its network carrier peers and it is showing clear benefits from its restructuring efforts," Liberum analysts said, reiterating their "Buy" rating.
AIMING FOR AER LINGUS
IAG has over the last year outshone strike-hit Air France and Lufthansa, which are now playing catch up trying to make cost savings.
Air France-KLM this month slashed 600 million euros ($673 million) of planned investments after reporting a 14 percent fall in core annual earnings, while Germany's Lufthansa scrapped its dividend to keep cash for restructuring.
Already the biggest European airline by market capitalisation, IAG could grow further by buying Aer Lingus.
But its 1.36 billion euro approach is yet to get the backing from the Irish government, which owns a 25 percent stake.
"We remain very interested in acquiring Aer Lingus and at this stage we have nothing additional to add to what we've already said," Walsh said when asked about the deal.
IAG said for 2015 it now expected operating profit in excess of 2.2 billion euros, compared to the 1.8 billion euros it had said it was targeting, the latest in a series of upgrades.
For 2014, it reported operating profit up 81 percent to 1.390 billion euros, ahead of a company-supplied consensus forecast of 1.373 billion euros, benefiting from cost-savings, a lower fuel bill and a strong trans-Atlantic market. ($1 = 0.8910 euros)
(Editing by Kate Holton)
By Sarah Young