IAG cuts its full-year profit guidance after a poor performance from its Spanish unit and rising fuel costs led it to a first-half loss.
The company was formed by the merger of British Airways and Iberia.
Europe's fourth-biggest airline group by market value today reported an operating loss of €253m in the six months to the end of June compared to a profit of €88m the same time a year ago.
Group revenue rose 9.8% to €8.53 billion.
IAG said British Airways made an operating profit, after exceptional items, of €13m in the first half, while Iberia made an operating loss of €263m. The company said it was working on a restructuring plan for underperforming Iberia which it expects to finalise by the end of September.
"We were previously targeting a break-even operating result this year, after the impact of Iberia restructuring costs and the short term earnings drag from the bmi acquisition. However, in the light of the Spanish macro headwind, we now expect to make a small operating loss in 2012," said IAG chief executive Willie Walsh.
"The Iberia restructuring plan could lead to further restructuring costs in the latter part of the year," he added.
Walsh said the Iberia restructuring would likely include short-term downsizing, a reshaping of its network as well as a re-evaluation of all aspects of the business.
European airlines are being hit by slower spending on air travel amid the euro zone debt crisis as well as by high fuel prices, and many have responded by shutting down unprofitable routes and limiting their spending.
IAG said its fuel costs rose 25% to just under €3 billion, while non-fuel costs jumped 9.5% to €5.8 billion.
IAG's European peers Lufthansa and Air France-KLM have embarked on cost cutting programmes, trimmed profit forecasts and slashed plans to expand capacity this year after results were battered by high fuel costs and weakening consumer demand.
Earlier this year IAG predicted its annual fuel bill would rise by €1 billion. Combined with €90m worth of restructuring costs stemming from its acquisition of bmi, Walsh said IAG would struggle to make any money this year.
