British and Iberia airways’ shares should stumble after second quarter results next week say analysts

International Airlines Group, the owner of British Airways and Iberia, has been caught in the turbulence of Spain’s increasing financial headwinds.

Given the current concerns about the eurozone’s stability and the airline’s large presence in the region, investors decided to bail out of its shares, sending them 3.2p lower to 145.4p, a decline of more than 2%. Citigroup, in a hefty report on the sector, forecast a slump in profits when IAG reports second quarter results on 3 August, although the bank kept its buy recommendation on the business. It said:

We expect operating profit (before restructuring/merger/BMI integration costs) of €16m compared to a profit of €190m a year ago. The main reasons for the reduced profit are around €300m fuel cost headwind (despite being 80% hedged), deteriorating economic conditions in Spain and seven days of strikes at Iberia that cost an estimated €20m in lost contribution. Last year’s result would have been negatively affected by the Arab spring and Japan’s earthquake/tsunami. IAG does not produce interim results separately for British Airways and Iberia but we would expect BA to be significantly profitable and Iberia and BMI significantly loss-making.

For the first half of 2012 we expect an operating loss of €233m versus a profit of €88m for the first six months of 2011.

Overall the prospects of a full Spanish bailout and a Greek exit from the eurozone continued to occupy the market, and with some disappointing US manufacturing and services figures sending Wall Street lower, the FTSE 100 finished down 34.64 points at 5499.23.