Low Cost & Regional

IAG to invest in hubs and people after margins, profit and capacity rebound

British Airways: cargo-only flights, coronavirus

BA and Iberia parent IAG said it will continue to build its hubs in Europe as it takes delivery of new aircraft.

The airline group reported record third quarter profits driven by high demand over the key European summer period with north and south Atlantic routes faring particularly well.

The operator said it expect 2023 “to be a year of strong recovery in our margins, operating profit and balance sheet and towards pre-Covid 19 levels of capacity”.

IAG reported strong operating profit growth excluding exceptional items in the three month period to September 30 of €1,745 million, up from €1,216 million  in 2022. This drove an operating margin of 20.2% (Q3 2022: 16.6%).

IAG saw capacity increase of 17.9%, with a focus over the summer on European holiday destinations and further investment across the south and north Atlantic, supported by 20 aircraft deliveries.

Passenger unit revenue increased by 2.2% year-on-year due to continued strong leisure demand. Fuel unit costs for the quarter were down 6.2% year on year.

Non-fuel unit costs for the quarter were 3.5% below the same period in 2022 despite a one percentage point impact from disruption including the UK NATS systems outage in August.

Quarter four bookings remain on track. Luis Gallego, International Airlines Group’s chief executive, said: “This quarter represents a record third quarter performance for IAG.

“This is allowing us to invest in the business and reduce a significant amount of our debt.

“During the third quarter we saw sustained strong demand across all our routes, in particular the North and South Atlantic and in all leisure destinations around Europe.

“We continue to develop our hubs of Barcelona, Dublin, London and Madrid, supported by our fleet deliveries and future orders.

“Our strong financial performance is enabling investment in our people and allowing us to further improve customer experience.

“At the same time, we will keep working towards our sustainability goals. We would like to thank all our employees across the Group for their contribution to this performance.”

IAG saw continued balance sheet strengthening with gross debt reduced by €2.4 billion to €17.2 billion with a £2 billion UKEF-backed loan repaid early and €0.5 billion IAG bond repaid. Credit rating agency S&P upgraded IAG and BA to Investment Grade as a result.

John Choong, senior equity analyst at investing comparison platform InvestingReviews.co.uk, said “The recovery in the travel sector shows no signs of cooling, and IAG’s latest results show exactly that, with total revenue hitting a record high for Q3.

“The consortium also smashed analysts’ expectations of €1.55bn with its operating profit of €1.75bn. This puts IAG in line to generate sustainable free cash flow for the year, with Q4 bookings in line with expectations.

“That said, not everything in the conglomerate’s earnings report was positive. In particular, fears understandably still linger around the current geopolitical tensions in the Middle East. There are some risks to the amount of earnings growth investors can expect moving forward, with higher oil prices and flight disruptions serving as turbulence.

“Consequently, CEO Luis Gallego downgraded his guidance for capacity for the year by 1%, to 96% of 2019 levels.

“Despite IAG having 73% of its fuel hedged for the rest of the year, it’s worth noting that the hedged prices are considerably higher than reported in the previous quarter, from $865/MT to $975/MT, making any cushion a thin one. This could prove detrimental as fuel prices normalise.

“So, even though there were plenty of positives to take away, the few negatives will still make for a bumpy flight for investors as the IAG share price battles through headwinds to return to its pre-pandemic levels.”

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