International Airlines Group set a new long-term operating profit target and said cost savings from the British Airways-Iberia merger would be higher than expected, helping it defy the gloom surrounding the global airline sector.

It set a new target for the merged entity to make an operating profit of around 1.5 billion euros (1 billion pounds) in 2015.

Europe's second-biggest airline group by value behind Germany's Lufthansa said it expected to achieve annual synergies of 450 million euros in 2015, the fifth year following the merger of BA and Iberia, up from 400 million euros previously.

Specific areas of financial benefit including the creation of (low-cost carrier) Iberia Express -- at least 100 million euros --- and hub improvements at Madrid Barajas airport,(at least 100 million euros, IAG chairman Antonio Vazquez said at the company's investor day.

From a 2010 base, we expect the optimisation of the trans-atlantic joint business with American Airlines to deliver at least 150 million euros.

BA and Iberia sealed an $8 billion merger last year, a move which helped the pair stem huge losses following the worst industry downturn in decades.

The upgraded synergy guidance and contribution expected from the American Airline venture are a positive, said Davy Stockbrokers analyst Joshua Goldman.

Industry body IATA last month said it expected airlines to suffer a weak end to the year due to waning consumer confidence, sluggish international trade and high fuel prices. Airline traffic has also been hit by the effects of political unrest in North Africa and the Middle East and the Japanese tsunami during 2011.

Shares in IAG, which have fallen 13 percent in the last month, were 4.6 percent up at 148.3 pence by 0910 GMT, valuing the business at around 2.8 billion pounds.

This a combination of strong marketing that has succeeded in pushing BA forward in the public mind after last year's industrial action but the real effect of global downturn is yet to impact, said BGC Partners analyst Howard Wheeldon.

Earlier in November, IAG reported a drop in third-quarter profit, hit by higher fuel costs, but said it expects to deliver significant growth in full-year operating profit. It has been helped by an uplift in business class travel in 2011.


European rivals have found it more difficult to overcome high oil prices and sluggish demand.

Germany's Lufthansa and Air France-KLM have cut profit forecasts this year after results battered by high fuel costs and slashed plans to expand capacity next year.

IAG also said its capital expenditure would hit 1.6 billion euros by 2015.

IAG last week said it had reached an agreement to buy Lufthansa's British unit bmi to boost growth at its Heathrow hub. It has also been linked to Portugal's TAP. [ID:nL6E7M40LL]

The airline group said it expects fuel costs to rise by around 14 percent in 2012 but sees flat non-fuel costs.

It added that it would increase capacity by 2.5 percent in 2012 and expects capacity to grow by the same number each year up to 2015.

Analysts have been calling for airlines to cut capacity to ease fierce price competition in the European market and improve paper-thin margins.

U.S. rivals such as Delta and United Airlines have already reduced costs by cutting capacity.

IAG said it was also targeting structural profit improvements of 400 million euros and organic growth of 150 million euros by 2015. Cost efficiency gains from the introduction of new aircraft into the fleet of around 250 million euros are also expected.

(Editing by Mike Nesbit)