IAG's shares climb after Air Europa deal ditched, analysts see TAP as next target
Adds analyst comment in paragraph 3, context throughout
By Joanna Plucinska, Prerna Bedi and Corina Pons
Aug 2 (Reuters) -British Airways owner IAG's ICAG.L shares rose more than 6% on Friday, after the company's stronger than expected performance in the second quarter and its move to scrap a proposed takeover of Spanish airline Air Europa.
IAG's results outshone rivals which have had a more challenging second quarter marred by rising costs and a slow down in so-called "revenge travel" demand where people rushed to take foreign trips immediately after the pandemic.
"This is a very solid set of results from IAG especially in the context of the profit warnings from Air France and Lufthansa which had investors speculating about a profit warning from IAG," Goodbody analyst Dudley Shanley said in a note.
IAG shares were up 6.4% at 0917 GMT, topping London's benchmark index .FTSE in contrast to other airline shares which have struggled.
IAG's second-quarter operating profit of 1.24 billion euros ($1.34 billion) beat market expectations of 1.08 billion euros, driven by demand for travel in its primary North Atlantic market.
IAG Chief Executive Luis Gallego on Thursday said the Air Europa deal was no longer in shareholders' interests after the European Commission said IAG's proposed concessions were not enough.
IAG announced last year it would buy out the 80% of Air Europa it did not already own for 400 million euros. JP Morgan analysts said IAG would also save about 350 million euros in break-up fees, which could mean higher shareholder returns.
IAG's decision to drop the Air Europa deal was seen as negative by some analysts who were hoping for more consolidation, but there was still optimism about the group's strategy for the remainder of the year.
"Clearly, Q3 will be another test for the resilience of pricing and IAG doesn't guide on forward yields, but lower capacity growth and 'continuing strong demand' should bring comfort for now," analysts at JP Morgan said.
WHAT'S NEXT FOR IAG?
Analysts and airline industry executives have long pointed to Portugal's national carrier TAP as the next takeover target on the European landscape, especially now that the European Commission has approved Lufthansa's stake in Italy's ITA Airways.
But political changes in Portugal have delayed a potential sale. Lufthansa LHAG.DE, Air France-KLM AIRF.PA and IAG have all expressed interest, raising expectations that an offer for the carrier could emerge this year.
Industry executives have called for further consolidation in Europe's aviation industry as larger, more stable groups like Lufthansa and IAG compete with mid-sized national carriers and growing budget carriers like Wizz Air WIZZ.L and Ryanair RYA.I.
($1 = 0.9258 euros)
Europe's airline shares dip in Q2 amidst rising costs https://tmsnrt.rs/3SAmvwB
Reporting by Prerna Bedi in Bengaluru; Editing by Mrigank Dhaniwala, Janane Venkatraman and Jane Merriman
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