LONDON—British Airways parent IAG is preparing to fly into uncharted territory of higher profits and increased cash flow, mirroring the successes U.S. carriers such as Delta Air Lines have had in minting big rewards through drastic restructuring.

International Consolidated Airlines Group SA, as IAG is formally known, on Friday raised its outlook for average annual earnings per share growth to more than 12%, from above 10% previously, for the 2016 to 2020 period. The operating profit margin outlook has been lifted to a range of 12% to 15%, up from 10% to 14%.

It also reshuffled executives that will be responsible for delivering those returns. In April, Alex Cruz, 49, the current head of IAG's budget unit Vueling, will take over as chief executive of British Airways, the biggest contributor to IAG's profit. Keith Williams, who has run the airline since taking over in 2011 and was previously its chief financial officer, will retire.

"The challenge at British Airways is to continue providing excellent customer service while ensuring that we meet the financial targets that IAG sets for us," Mr. Cruz said.

Former pilot and IAG Chief Executive Willie Walsh has been aggressively remaking the airline group since its creation in 2011 through a merger of Spain's Iberia with British Airways, which he ran at the time. He pushed through cost reductions at the Spanish carrier, including thousands of job cuts, to restore the airline to profitability. IAG also has added budget carrier Vueling to its stable of airlines and this year bought Aer Lingus, a carrier Mr. Walsh ran before British Airways.

Mr. Walsh has said IAG would only invest in those units that can deliver profits. The group this week bought more long-haul planes for Iberia to fuel growth and is adding Airbus A330 widebody jets for newly acquired Aer Lingus to enable its expansion of flights to the U.S. It previously made jetliner purchases to bolster British Airways and Vueling.

Synergy savings at the airline group should reach €800 million ($870 million), said IAG's Chief Financial Officer Enrique Dupuy, or about double the original target.

IAG last week said it expects a record operating profit of €2.25 billion to €2.3 billion as it benefits from merger benefits, cost reductions, and lower fuel costs. Those factors also are driving record returns at Delta Air Lines and IAG's close trans-Atlantic partner American Airlines Group Inc.

"When we merged British Airways and Iberia five years ago we had a vision of a group of airlines not just to be a major player but to really be an industry leader and I think what we have done in the five years is exactly in that direction," IAG Chairman Antonio Vá zquez Romero told investors on Friday. "We have set a strong foundation for the future," he said.

IAG's improving fortunes also promise to further separate the airline group from its nearest rivals, Air France-KLM SA, Europe's largest airline by traffic, and No. 2 Deutsche Lufthansa AG.

Both of the continental airline groups have also enjoyed rising profits this year, heavily driven by a sharp drop in fuel costs. They have struggled to implement restructuring amid fierce opposition from labor groups

Lufthansa cabin crew on Friday announced renewed strike plans. Labor unrest also is hampering Air France, where some employees physically assaulted management last month over job cut plans.

IAG's new profit outlook is promising investors healthy returns even without the big fuel boost that has aided results this year and should do so again in 2016.

IAG said it now targets a sustainable return on invested capital of 15% compared with a previous projection of 12% for the five-year period starting in 2016. Equity free-cash flow targets for the period through the end of the decade is now set at €1.5 billion to €2.5 billion per annum, versus €1 billion to €1.5 billion per annum previously, it said.

The airline group, which is investing heavily in new planes including Boeing 787 Dreamliners and Airbus A350 long-range jets, also narrowed its capital cost band to average less than €2.5 billion a year, from a range of €2 billion to €3 billion.

IAG also said it was moving Nick Swift from running its cargo operations, to serve as British Airways' CFO. Replacements for Mr. Swift and Mr. Cruz at Vueling will be named later.

Razak Musah Baba contributed to this article.

Write to Robert Wall at robert.wall@wsj.com

 

Access Investor Kit for "Deutsche Lufthansa AG"

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0008232125

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 06, 2015 05:25 ET (10:25 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.
Air FranceKLM (EU:AF)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Air FranceKLM Charts.
Air FranceKLM (EU:AF)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Air FranceKLM Charts.