First-quarter profit soars at British Airways owner IAG
▶ Higher sales and lower fuel costs help company post solid result as it looks for summer travel boom
The owner of British Airways and the Irish airline Aer Lingus posted better-than-expected first-quarter financial results, with a forecast-beating operating profit of €68 million ($73 million), as the group looks forward to a profitable summer.
International Airlines Group, which also owns Iberia and Vueling, said it was continuing to register a rebound in leisure travel, especially between European cities.
IAG had reported an operating profit of just €9 million in the same quarter last year.
IAG chief executive Luis Gallego credited the group’s “transformation initiatives and increased demand” for “another very good set of results”.
“Our group benefits from the strength of our core markets – North Atlantic, South Atlantic and intra-Europe – and the performance of our brands.
“We are well-positioned for the summer. The high demand for travel is a continuing trend,” he said.
IAG said business travel was recovering more slowly, but passenger revenue per available seat kilometre (better known in the industry as ASK) for the first quarter was 4.4 per cent higher than in the same period last year.
Russ Mould, investment director at AJ Bell believes the lacklustre recovery in business travel means the highly competitive leisure market is IAG’s “bread and butter for the time being”. Business demand is still a laggard compared to leisure travel, he added.
“That’s a bugbear for International Consolidated Airlines given its British Airways brand used to hang its reputation on attracting large swathes of business customers.”
Mr Mould said the advent of video conferencing systems such as Teams and Zoom has reduced the travel requirements for many companies.
“While there are tentative signs of a recovery in demand for in-person meetings in various parts of the world, there is a still long way to go before we return to pre-Covid levels.”
While IAG’s fuel costs were 5 per cent lower, operating costs were higher due to the increasing number of flights.
Employee costs jumped by more than 14 per cent, due to staff wages being pushed up and the recruitment of more staff before what is predicted to be a busy summer schedule.
“It is pleasing to see positive progress on all key financial metrics,” said Derren Nathan, head of equity research, Hargreaves Lansdown.
“Lower fuel costs were complemented by a greater mix of more modern efficient aircraft, and operational costs are also being tightly managed.
“There was little in the way of forward guidance but the tone was confident, with IAG well positioned for the summer, against a backdrop of continuing high demand for leisure travel.”
‘More challenging’
IAG numbers impressed analysts, given that the first quarter is often loss-making for airlines, with fewer bookings in January and February.
Strikes hit IAG’s large European rivals during the quarter. Lufthansa and Air France-KLM reported worse-than-expected financial results.
“Lufthansa had strikes, which was the big problem. Air France-KLM had some oneoffs, but IAG was still better,”
said Alex Irving at Bernstein. “IAG is the higher-margin group anyway: Double-digit margins vs single digits at the others in general,” he said.
While IAG said its performance in its European and American markets had been strong, the rest of the world is “currently more challenging”, with capacity to the Africa, Middle East and South Asia regions increasing by a mere 0.4 per cent.
“In particular, the conflict in the Middle East has impacted flying by most of our airlines to the region,” the group said.
However, Mr Gallego added that IAG’s exposure to the Middle East was “very small”, so it had not registered a big impact from the conflict.
We are well-positioned for the summer.
The high demand for travel is a continuing trend
LUIS GALLEGO
IAG chief executive