Given the expected progress made by the Spanish airline Iberia, Credit Suisse has lifted its recommendation for parent company International Consolidated Airlines Group (known as IAG) from 'neutral' to 'outperform'.

The broker estimates that IAG recorded an operating loss of €116m in 2012, with a €276m profit at British Airways (including a €120m loss at the bmi unit) offset by a €334m loss at Iberia.

"If Iberia management can negotiate a satisfactory deal with labour, or unilaterally reduce headcount (plan B), we think Iberia should limit its 2013E operating loss to c€100m (despite 1Q weakness)," Credit Suisse said.

As for BA, Credit Suisse expects the division to grow earnings by around €400m in 2013, helped by lower fuel costs and a €60m swing at bmi.

IAG's group underlying earnings before interest and tax (EBIT) are expected to grow from €372m in 2012 to €595m in 2013.

"The market has begun to price in Iberia progress. However resolution of labour challenges would likely
drive significantly greater confidence in management's ability to achieve 2015 targets", the broker said.

IAG's target price has been lifted from 184p to 259p.

Shares were up 1.39% at 211.3p by 10:29 on Monday.

BC

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