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* Q1 operating loss narrows to 150 mln euros vs 162 mln consensus
* Says 2014 operating profit to be at least 500 mln euros higher than 2013
By Sarah Young
LONDON, May 9 (Reuters) - British Airways owner International Consolidated Airlines Group reported better than expected first-quarter results on Friday, with a halving of losses at troubled Spanish carrier Iberia putting it on course for a rise in annual profits.
Iberia has in recent months settled a number of employee disputes on work and pay which IAG has said will see the Spanish carrier return to profit this year.
"The performance so far this year has been one that has pleased us significantly given the reduction in operating losses in the first quarter. We're particularly pleased with the continued progress being made in Iberia," Chief Executive Willie Walsh told reporters on a call.
He added that the company, Europe's largest airline by market value, was on track to make an operating profit of 1.8 billion euros in 2015.
The company posted an operating loss before exceptional items of 150 million euros in the three months to March 31, down from a 278 million-euro loss in the same period last year and better than analysts' expectations of a 162 million-euro loss, according to a company poll.
Like many airlines and tour operators IAG, which also owns Spanish low-cost carrier Vueling, generally reports a loss in the traditionally weaker first three months of the year and makes the bulk of its profits in the summer months.
The company also reported on Friday that group passenger traffic in the first four months of the year was up 5.5 percent on a like-for-like basis, but average loadings were down 0.1 percentage points at 77.7 percent of capacity.
Looking ahead, IAG said cost cutting would help it increase operating profits in 2014 by at least 500 million euros from the 770 million euros made last year, putting it on track to meet current analysts' forecasts for about 1.3 billion euros.
Shares in IAG, which have risen 44 percent over the last 12 months, gained as much as 2 percent in early trading, before turning down 2 percent to trade at 396 pence by 0909 GMT.
"A lot of this good news is built in," Cantor analyst Robin Byde said, calling the results "solid".
IAG's assurance that it was on track to meet expectations for this year echoed recent updates from rival legacy carriers AirFrance-KLM and Lufthansa.
The company also said British Airways, the biggest and most profitable part of its business which partners American Airlines Group in the lucrative transatlantic market, was benefiting from fuel efficiencies on its new aircraft.
"We've no concerns about transatlantic capacity. As far as we're concerned, the capacity that we've seen in the market is more than justified by the demand that exists," Walsh said of competition at its London Heathrow hub now that Delta Air Lines owns 49 percent of BA's arch rival Virgin Atlantic. (Editing by Paul Sandle and Greg Mahlich)