International Airlines Group said the revamp of its Spanish carrier Iberia was starting to bear fruit as the group swung to a quarterly profit.
IAG, Europe's third-biggest airline by market value, has spent around €700m on restructuring Iberia, which reduced losses for the first time in almost three years in the second quarter.
The Spanish airline became unprofitable in all markets, including long-haul, following its merger with British Airways in 2011.
Iberia has been hit by competition from low-cost rivals and high-speed trains, labour disputes and a recession that has left a quarter of Spaniards out of work.
"Iberia has started to turn the corner," IAG chief executive Willie Walsh said today. "It is starting to see the benefits of cuts to costs and capacity but there's still a long way to go."
Full-service carriers such as BA and Germany's Lufthansa have slashed jobs and shelved growth plans as they grapple with high fuel prices, a weak economy and fight to defend market share against low-cost rivals such as Ryanair.
Lufthansa, itself in the middle of a deep revamp, today reported a 27% fall in second-quarter profit after staff costs grew and demand remained weak.
IAG has cut 1,700 jobs at the Madrid-based carrier and plans to take that figure to more than 3,000 by 2014 as part of plans to focus long-haul routes which it believes can become profitable. Budget carrier Vueling, which IAG acquired earlier this year, and its Iberia Express unit, will concentrate on shorter services.
Losses at Iberia, Europe's biggest carrier to Latin America, fell to €35m in the three months to the end of June from €93m the same quarter last year. Prior to its merger with Iberia, BA faced similar problems to the Spanish carrier and responded by cutting staff, lowering salaries and offering more competitive ticket prices.
BA is now performing consistently well and second-quarter profit almost trebled to €247m, boosted by strong transatlantic traffic out of its London Heathrow base.
Shares in IAG, which have risen 57% so far this year, hit 312.30 pence in early trade, their highest level since the merged BA-Iberia listed on the stock market in January 2011.
Walsh reiterated his view today that IAG would deliver an operating profit of €1.6 billion by 2015.
The company reported a second-quarter operating profit of €245m, compared with a €4m loss a year ago, and ahead of an average forecast from analysts of €163m.
IAG said it could not provide guidance for 2013 operating profit because it was waiting for shareholder approval for its fleet replacement orders, which could have an impact on future profits.
Earlier this year Walsh said IAG would report an operating result close to the €485m profit it delivered in 2011, subject to the success of its Iberia restructuring plan. The group plans to increase capacity by 5.2% this year, helped by Vueling, which delivered a €27m profit in the quarter.
