IAG: Airfares may stop falling soon
LONDON:
British Airways-owner IAG said trading was holding up in a tough environment and the trend for falling fares was probably stabilizing, boosting its shares. Chief Executive Willie Walsh said he was seeing rival airlines trimming their capacity growth plans, providing investors with some comfort after the industry had warned that fares could fall further this winter on stiff competition. That outlook, and the fact that trading conditions for the group, which also owns Iberia, Vueling and Aer Lingus, had not deteriorated since July, offset any negative impact from the airline group’s downgrade to its 2016 profit forecast, which it blamed on the weaker pound. Asked about passenger unit revenues, a reflection of air fares, Walsh said that the outlook was better today than it had been three months ago, and that those trends would continue in the first and second quarter of next year. “We’re probably seeing some evidence of it having bottomed out,” Walsh told analysts on a call. That contrasted with recent warnings from low cost European rivals Ryanair and easyJet, which said in October that fares would continue to decline.
US rival United Continental said last week it was seeing a glut in transatlantic capacity and it was unclear whether passenger unit revenue would stop declining in 2017. Shares in IAG rose 5.5 percent to 435.9 pence by 1059 GMT, topping Britain’s blue chip index. “It’s certainly a positive trend,” said Davy analyst Stephen Furlong, after IAG’s third-quarter results showed that passenger unit revenue on a constant currency basis fell 5.9 percent, an improvement on the 6.2 percent fall in the previous period. Walsh said that he was pleased with the group’s performance and that the main change since July had been the devaluation of sterling. The pound has fallen 18 percent against the dollar since Britain voted in June to leave the European Union, and has shed 15 percent against the euro, causing headwinds for IAG. It reports in euros but gets a third of its revenues from the UK, and pays for fuel in dollars.