Spanish airline Iberia will quicken the pace of planned capacity and cost cuts after a bigger-than-expected loss in the first half of the year, when the depth of the slump in air travel took it by surprise, Reuters reported. The company, which said on Friday it remained optimistic that merger talks with British Airways would bear fruit, will cut capacity by 6 percent in 2009, above a previous target for 4.3 percent, grounding another three Airbus A320s and postponing delivery of a new A340-600. The airline said it would also tailor headcount to reflect declining demand for air travel and to boost yields. "Our contingency plan has to be updated because the impact of the crisis has far exceeded expectations," chairman Antonio Vazquez, who was appointed in July, told a conference call following results. "To date our measures haven't been enough." Airlines around the world have been suffering heavy losses due to a slump in passenger numbers and volatile fuel prices. The International Air Transport Association predicted on Thursday a fragile recovery in air traffic as the global economy claws its way out of recession. Iberia's shares gained 2.1 percent by 1200 GMT, against a 1.1 percent gain in the DJ travel and leisure index as investors welcomed the airline's tough stance on costs and continued to hope for a merger. The arrival of Vazquez, a proven dealmaker, has been seen as boosting Iberia's chances of combining with BA, a deal that has been in the works for over a year and one that analysts said is all the more urgent given falling demand for air travel. Iberia, Europe's fifth-largest airline by value, said it is still optimistic. "We have been in regular contact with British Airways (...) and we remain positive on the outcome of the talks," Vazquez said. Iberia said its passenger revenues may have hit a low in the second quarter and it expected margins to improve over the rest of the year thanks to its aggressive capacity and cost cuts. "The company is showing it has the flexibility for further adjustments if demand keeps falling, which is likely to be the case until the economy recovers," BPI analyst Joaquin Garcia Romanillos said. Iberia said 70 percent of its fuel costs were hedged for 2009 and 25 percent for 2010. Iberia's losses before interest and tax (EBIT) reached 276.9 million euros ($398 million) in the first half to June, compared with an adjusted loss of 32.3 million a year ago, and missing an average analyst forecast of 257 million. The group swung to a net loss of 165.4 million euros from a profit of 21 million as revenues slumped 18.9 percent to 2.166 billion. The company has already said it was unlikely to post a profit in 2009 if the crisis persists but predicted a return to profitability in 2010.
