The owner of British Airways and the Irish airline Aer Lingus posted better-than-expected first-quarter earnings on Friday 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.
This rebound is reflected in the fact that in the same quarter in 2023, IAG's operating profit was €9 million.
“Our transformation initiatives and increased demand, including over the Easter holidays, have delivered another very good set of results with improvements to both revenue and operating profit,” said IAG chief executive Luis Gallego.
“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.”
Business travel, IAG said, was recovering more slowly but, nonetheless, 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 feels 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 said.
“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.
“The advent of video conferencing systems Teams and Zoom have done away with the need to travel to meetings for many companies and that’s hit IAG where it hurts.
“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 given 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’s 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 earnings numbers.
“Lufthansa had strikes, which was the big problem. Air France-KLM had some one-offs, but IAG was still better. IAG is the higher-margin group anyway: Double-digit margins vs single digits at the others in general,” said Alex Irving at Bernstein.
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.
Shares in IAG rose by 1.5 per cent on Friday morning in London.
British Airways uniforms through the years - in pictures
