By Sarah Young
LONDON (Reuters) - British Airways owner IAG (L:IAG) lifted its 2015 profit outlook after third-quarter results beat expectations, citing strong demand for summer travel and cheaper fuel, and promised more progress on its cost base next year.
IAG, which in August added Ireland-based carrier Aer Lingus (IR:AERL)
Analysts had expected the upgrade, with estimates averaging 2.26 billion euros before Friday's announcement, and shares in the company dropped 3.9 percent to 573.7 pence by 0842 GMT.
The stock had been on a strong run before Friday, soaring by 27 percent over the past two months, outperforming Britain's blue-chip market, which fell by 9 percent over the same period.
"We think that IAG is up with events," said Cantor analyst Robin Byde, who has a "sell" rating on the stock.
"The stock has outperformed the wider market and its peers Air France-KLM and Lufthansa, and its valuation is unattractive."
Rival airlines Lufthansa (DE:LHAG) and Air France-KLM (PA:AIRF) reported better than expected quarterly results on Thursday, though share prices dropped for both, partly because of profit-taking.
COST CUTS
Investors in Lufthansa and Air France-KLM remain concerned over the companies' ability to cut costs in the battle for long-term competitiveness against fast-growing budget airlines, but IAG continues to make progress in that area.
IAG's non-fuel unit costs were 3.5 percent lower in the quarter on a constant currency basis and Chief Executive Willie Walsh told reporters there was more to come.
"We're very encouraged with the progress we've made in renegotiating contracts and negotiating new contracts with suppliers, and we expect further improvement in 2016," he said.
Excluding Aer Lingus, IAG posted third-quarter operating profit of 1.205 billion euros on Friday, higher than a consensus forecast of 1.197 billion euros.
IAG's results followed its announcement on Thursday that the board had approved an interim dividend, which it had said would be triggered by it meeting 2015 financial targets. The payout is the first since the company was created in 2011 through a merger of BA and Spanish airline Iberia.
Walsh promised investors further details of potential savings from the 1.3 billion euro acquisition of Aer Lingus at a group presentation on Nov. 6, when forecasts for IAG's 2016 performance are also expected to be made.
Analysts say that 2016 could be a bumper year for IAG as long-term fuel deals expire, allowing it to benefit fully from an oil price that has more than halved since June last year.
