IAG returns to profit but warns of rising fuel

International Airlines Group, formed by the British Airways and Iberia merger in January, has shrugged off freezing UK weather and a Spanish air traffic controllers’ strike to report a rise in pre-tax profit to €21m for the final quarter of 2010.

But the group warned that the impact of political unrest in the Middle East on fuel prices could harm future earnings.

IAG is hedged for 53 percent of its fuel requirements in 2011. The combined group said its pro-forma fuel costs rose 5.2 percent in the last quarter.

“The current political instability in the Middle East and its impact on fuel prices is being monitored closely,” Chief Executive Willie Walsh said.

He added: “We are keeping the situation under review and we will adjust the fuel surcharge if we think it’s necessary.

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“There has been an increase in the volatility of the fuel prices over the last few weeks. It is likely that increases will be seen in the market and this will affect all airlines and will be a challenge to the industry.”

The combined group posted pre-tax profits of €21m for the three months to December 31, compared with losses of €208m a year earlier.

Walsh added that IAG’s long-haul business remained strong, particularly in the first-class and business class sectors, but he commented that the short-haul European market “continues to be highly competitive”.

The pre-tax profits for BA alone were £157m for the nine months to 31 December, with the flag carrier saying it had made “significant progress” despite the Icelandic volcanic eruption in April, severe winter weather and industrial action by cabin crew.

A fresh ballot on further strike action will take place next month.