By Anthony O. Goriainoff and Robert Wall

 

International Consolidated Airlines Group SA (IAG.LN) Friday said that higher fuel costs and stiff competition shrank first-quarter pretax profit, but that improving unit revenue and cost control should allow it to meet full-year targets.

IAG, the parent of British Airways and Iberia, also said the airline group is cutting capacity, particularly to weaker markets such as Brazil, Argentina and South Africa. Full-year capacity will grow by 5.3% compared to 5.9% previously projected, Chief Executive Willie Walsh said Friday.

The airline group, which also includes Aer Lingus and budget units Vueling and Level, said that for the quarter ended March 31, statutory pretax profit was 86 million euros ($96.3 million) compared with EUR885 million a year earlier.

IAG's closely watched operating profit before exceptional items came in at EUR135 million, compared with EUR340 million a year earlier on a pro-forma basis.

Total revenue for the period was EUR5.32 billion, compared with EUR5.02 billion the year prior.

Capacity expansion in Europe, which depressed yield in the first quarter, should moderate over the coming weeks partly reflecting the global grounding of Boeing Co. (BA) 737 MAX airliners after two fatal crashes, IAG Chief Financial Officer Enrique Dupuy. Several IAG rivals were planning to operate the Boeing plane this summer, but have had to cancel some flights with the MAX idled by regulators.

Fuel-unit costs for the quarter rose 16%, or 11% at constant currency. Nonfuel unit costs before exceptional items rose 0.8%, but fell 0.6% at constant currency on a pro forma basis. Fuel costs increased 23%. Average fuel prices increased in the period net of hedging, mainly due to hedging profits in 2018 not repeated in 2019.

The company said that at current fuel prices and exchange rates, it expects 2019 operating profit before exceptional items to be in line with last year's EUR3.5 billion. Passenger-unit revenue should be flat at constant currency, while nonfuel unit costs is expected to improve at constant currency.

Mr. Walsh also ruled out IAG making an offer for airlines being put up for sale by tour operator Thomas Cook Group PLC (TCG.LN) an added IAG had no plans to renew takeover ambitions for Norwegian Air Shuttle ASA (NAS.OS).

 

Write to Anthony O. Goriainoff at anthony.orunagoriainoff@dowjones.com and Robert Wall at robert.wall@wsj.com

 

(END) Dow Jones Newswires

May 10, 2019 06:00 ET (10:00 GMT)

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