British Airways Parent Reports Rising Profit Amid Pilot Feud 

(Bloomberg) -- A pilot strike at British Airways is emerging as the biggest threat to earnings at parent IAG SA as lucrative long-haul destinations help insulate the group from the impact of falling prices on European routes.

IAG rose as much as 4.7% after reporting an 18% jump in profit led by results at the former U.K. flag carrier. The performance was the best among Europe’s top airlines for the June quarter, but is in jeopardy from walkouts that could begin later this month at the height of Europe’s summer travel season.

Chief Executive Officer Willie Walsh declined to comment on last-ditch labor negotiations due Friday after failing to get a U.K. court to outlaw the first strikes by pilots in four decades. A walkout at British Airways would crimp earnings that have helped offset the poorer performance of IAG units more vulnerable to a fare war in the region.

IAG’s outlook for the rest of the year is surprisingly bullish in light of current uncertainties, Sanford C. Bernstein analyst Daniel Roeska said in a note.

The British Airline Pilots’ Association, which will meet with BA managers at a conciliation service in London, could call a strike at two weeks’ notice at a cost of 40 million pounds ($48 million) a day, based on the carrier’s estimates.

Pricing Optimism

IAG stuck with guidance for full-year earnings in line with the 2018 pro forma figure at constant fuel prices and exchange rates. Second-quarter operating profit before items rose to 960 million euros ($1.1 billion), beating the analyst consensus.

Walsh predicted pricing should improve in the second half and said the results show the value of a diversified portfolio that includes Spain’s Iberia, Dublin-based Aer Lingus and discount operators Vueling and Level.

“Our assessment of both demand and supply is ok at the moment,” the CEO said. While the economic environment “is clearly softening,” a glut in seats that’s prompted a European fare war should ease as weaker competitors rein in capacity or exit the market, he predicted.

Walsh said there’s no evidence concern about Brexit is putting people of flying, with U.K.-point-of-sale demand higher. He added that the company has preparations in place for a no-deal split, though there could still be an impact from any hit on the British economy.

IAG shares traded 1.6% higher at 420.3 pence as of 9:41 a.m. in London, paring the stock’s decline this year to 27%.

To contact the reporters on this story: Benjamin Katz in London at bkatz38@bloomberg.net;Simon Foy in London at sfoy8@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Christopher Jasper, Tara Patel

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