BA owner IAG records £199m loss

Spain's economic crisis and the "deep and structural" problems of its main airline have plunged the owner of British Airways into the red.

A further rise in fuel costs added to the pain as International Airlines Group (IAG) - formed from the 2011 merger of BA and Iberia - posted operating losses of 253 million euros (£199 million) for the six months to June 30, compared with profits of 88 million euros (£69 million) a year earlier.

While steady trading conditions helped BA make an operating profit of 13 million euros (£10.2 million), Iberia's losses deepened to 263 million euros (£206.9 million).

IAG had been expecting to break even this year but with the debt-laden Spanish economy expected to contract this year and next, it is now forecasting a small operating loss for 2012.

Chief executive Willie Walsh said there was a "stark difference" in the performance of the two subsidiaries.

He is working on a restructuring plan for Iberia, which is likely to include short-term downsizing, network reshaping and "re-evaluation of all aspects of the business". He warned that job cuts were inevitable.

Mr Walsh said: "Iberia's problems are deep and structural and the economic environment reinforces the need for permanent structural change."

Iberia generates 27% of the group's turnover, with half of this coming from Spain, while British Airways derives only around 5% of its revenues on routes to Italy, Spain, Portugal and Greece.

The region's difficulties have prompted IAG to establish a eurozone crisis management group, which meets every two weeks to review progress. IAG shares opened 5% lower.

BA and Iberia have retained their brands in the merger, which is expected to save 400 million euro (£314 million) a year by its fifth year. It is now the third largest scheduled airline group in Europe and the sixth largest in the world, based on revenues.