British Airways-owner IAG laid out plans to pay a maiden dividend today, coming of age three years after the merger between BA and Spain’s Iberia in 2011 that created the group.
IAG said it was confident of growing earnings by over 10 per cent a year between 2016 and 2020, on top of significant profit growth this year and next, and as such, it anticipated declaring next year it would start paying shareholders. “We remain confident in meeting our 2015 financial targets which we see as the trigger to introducing a dividend,” the company said in a statement ahead of an investor day today.
BA and Iberia sealed an $8 billion merger in 2011, a move which helped both stem huge losses following the worst industry downturn in decades. Years of tough restructuring followed - with thousands of job cuts and salary and capacity reductions.
Before the 2011 tie-up, neither BA nor Iberia had paid a dividend since 2008. The dividend due to be introduced next year would be based on a payout ratio of 25 per cent of the company’s underlying profit after tax, IAG said.
Looking to the 2016 to 2020 period, IAG said it would target average earnings per share growth of over 10 percent a year and an operating profit margin of 10 to 14 per cent.
It already expects to grow operating profit of as much as 78 per cent in 2014, and by a further 31 per cent to €1.8 billion in 2015. The restructuring carried out since IAG was formed plus the introduction of new, more fuel efficient planes has put the airline on a strong footing, leaving its European rivals fighting to keep up in an increasingly competitive market.
IAG powered ahead in the third quarter, in contrast to Air France-KLM which warned on 2014 profit after a two-week pilot strike, and Lufthansa, which lowered its guidance for next year’s profit. While Lufthansa and Air France try to expand their low-cost operations and reduce costs to compete with low-cost carriers like Ryanair and easyJet, IAG has already been benefiting from its acquisition of Spanish budget airline Vueling in 2013.
Reuters