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BUSINESS EARNINGS
British Airways Parent Jump-Starts Plans for Budget -/BLOOMBERG NEWS
By ROBERT WALL
Updated Feb. 24, 2017 6:47 a.m. ET
6 COMMENTS
LONDON— British Airways parent IAG on Friday said it is about to jump-start its new budget unit serving trans-Atlantic routes after it reported a 29% rise in net profit, announced a €500 million ($529.7 million) share buyback and promised further profit growth.

Tickets for the discount unit, which is set to start flying from Barcelona in June, “will go on sale shortly,” said Willie Walsh, chief executive of Intercontinental Consolidated Airlines Group SA, as IAG is formally known. The airline hasn’t identified the first destinations.

Competition is heating up on in lucrative long-haul market, where budget operators such as Norwegian Air Shuttle SA are expanding. The Scandinavian carrier said it would expand its trans-Atlantic flights using Boeing Co. 737 Max single-aisle planes from this summer to serve smaller U.S. cities having so far relied on larger 787 Dreamliners. Deutsche Lufthansa AG’s budget Eurowings unit also flies trans-Atlantic routes and Air France-KLM SA has announced plans for a new discount long-haul service.
IAG—the operator of British Airways, Iberia, and discount carrier Vueling—is fighting back with the discount Barcelona operation, which will initially use two Airbus SE A330 planes. British Airways also is adding seats to some of its long-haul planes to lower cost and better compete with carriers such as Norwegian Air.
Budget long-haul efforts in the past have struggled to make money. Mr. Walsh promised the new business would be profitable and said, “we believe it can achieve all the financial targets we have set for the group.” He said there was good demand for trans-Atlantic flights with the strong dollar boosting sales in the U.S.

IAG also plans to introduce Airbus A321LR single-aisle planes, which should deliver lower per-seat costs for trans-Atlantic flights. IAG has been in the market to acquire such planes for its Irish Aer Lingus unit, but Mr. Walsh said it could be used also by other group carriers and used across IAG’s network, on flights to and from the U.S. to Ireland, the U.K. and Spain. Other destinations, such as in Africa, that don’t warrant a larger, more expensive widebody aircraft, also could be served by the new plane, Mr. Walsh said. He dismissed the idea of buying CSeries planes from Canada’s Bombardier Inc.
IAG said its net profit last year rose to €1.93 billion from €1.49 billion in the previous year, as it continued to benefit from restructuring and cost-cutting in addition to a sharp drop in fuel costs after a slump in oil prices that began in mid-2014. IAG’s fuel costs fell about 20% last year.