By Robert wall
LONDON-- British Airways parent International Consolidated Airlines Group SA issued a profit warning Friday, cutting its earnings outlook further after third-quarter operating profit fell 3.6%, weighed down by the sharp drop in sterling after the U.K. voted to leave the European Union.
Operating profit for the crucial July through September period was EUR1.21 billion euros ($1.32 billion), with a EUR162 million currency headwind in the quarter. Net profit rose 9.9% to EUR930 million from EUR848 million. Sales in the period declined 4% to EUR6.5 billion.
IAG reports earnings in euros, but its British Airways unit that generates most profit principally sells tickets in pounds which are now worth less.
The airline group, which also includes Aer Lingus and Spanish carriers Iberia and Vueling, cut its profit outlook for the year following the referendum. The pound has depreciated further since then against the dollar and the euro.
IAG Friday said it would deliver a full-year operating profit of EUR2.5 billion. It had already revised its outlook down to low double-digit growth in its adjusted operating profit beyond the EUR2.3 billion generated in 2015. IAG began the year expecting to deliver an operating profit of about EUR3.2 billion
European airlines have faced a multitude of headwinds weighing on earnings. Ticket prices are plummeting because of overcapacity, terror attacks have spooked passengers and repeated air-traffic-control strikes have led to thousands of flight cancellations.
"While strong, these results were affected by a tough operating environment with a very significant negative currency impact," IAG Chief Executive Willie Walsh said.
Britain's June 23 vote to leave the EU has led the country's currency fall to more than 30-year lows. IAG isn't the only airline to suffer. Ryanair Holdings PLC, Europe's biggest discount airline, this month said its profit in the fiscal year ending March 31, 2017, would advance more slowly than expected because of the currency headwind.
IAG on Thursday said it would pay an interim dividend of EUR0.11 per share, a 10% increase over the prior-year period, which it expects to be about half of the full-year payout.
IAG also said British Airways agreed with pension trustees a technical deficit of GBP2.8 billion ($3.4 billion), only slightly higher than the early projection. Annual payments are little changed.
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