British Airways, Air France face heat from stronger dollar

* IAG Q1 profit of 25 mln euros vs 150 mln euro loss last yr

* Air France Q1 loss 417 mln euros vs 445 mln loss last yr

* Shares (Berlin: DI6.BE - news) in IAG down 2 pct, Air France (Paris: FR0000031122 - news) down 3.2 pct (Adds IAG and analyst comment, share price)

By Sarah Young and Victoria Bryan

LONDON/BERLIN, April 30 (Reuters) - British Airways-owner IAG swung to a profit for the first time in its seasonally weakest first quarter, but warned a stronger dollar would hold it back this quarter, echoing a warning from rival Air France-KLM (Other OTC: AFLYY - news) .

Both airlines saw lower fuel bills, but Air France said pressure on ticket prices and the firmer dollar would offset any benefits over the whole of 2015, while IAG said its rate of profit improvement would slow in the current quarter.

"Fuel in the second quarter will show an increase because of the movement in the euro-dollar principally, so it is a significant issue," IAG chief executive Willie Walsh told reporters on Thursday.

European airlines are losing some of the benefit from lower fuel prices, which they buy in dollars. The euro weakened by more than 11 percent against the dollar in the first quarter.

Shares in IAG, formed from the 2011 merger of British Airways (BA) and Iberia, fell 2 percent, while Air France was 3.2 percent lower at 0948 GMT, which analysts said partly reflected the oil price's climb to a five-month high.

At IAG, there was also some profit-taking, analysts said, after a 40 percent rise in the stock over the last six months. "All the good news looks priced-in," Cantor's Robin Byde said.

IAG and Air France, Europe's biggest and third biggest legacy carriers respectively, both kept previously-announced targets for 2015 and said they were focused on lowering costs, with IAG outperforming Air France on that front in the first quarter -- continuing the trend of recent years.

To counter price competition in Europe, where low cost airlines such as Ryanair and Gulf carriers including Emirates are stealing market share on short and long routes respectively, Air France is battling with unions to cut costs.

IAG's businesses have already concluded that process.

Productivity improvements at Iberia, more efficient planes, higher passenger numbers and a strong performance on BA's key trans-Atlantic routes, helped IAG post an underlying operating profit of 25 million euros ($28 million) for the three months ended March 31, versus last year's 150 million euro loss.

European airlines tend to run at a loss in the winter quarter when fewer customers fly. Air France-KLM said its first-quarter operating loss narrowed to 417 million euros ($463 million) from 445 million a year ago.

IAG gave no update on its 1.36 billion euro plan to buy Ireland (Other OTC: IRLD - news) 's Aer Lingus (Other OTC: AELGF - news) , as it waits for the Irish state to decide whether to sell its 25 percent stake.

"It's not a distraction for us so from that point of view we're not under any pressure, nor are we intending to put any pressure on anybody involved in the process," Walsh said. (Editing by Mark Potter)