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British Airways owner IAG's profit propelled by North American tailwind

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DUBLIN (Reuters) - British Airways owner IAG (ICAG.L) gave an optimistic outlook on Friday as growing revenues in North America and an easing in fuel cost growth helped it exceed profit forecasts for the first half of its key summer period, lifting its shares.

IAG Chief Executive Willie Walsh also said he “would like to hope” that British Airways could reach a deal with its pilots, who last month voted for strike action in a dispute over pay, although they have not yet served notice.

“Despite fuel cost headwinds, we delivered a good performance. We’re on track to meet our financial targets,” Walsh said of the owner of Iberia, Aer Lingus and Vueling.

IAG shares were up 2.3% at 0915 GMT compared to a fall of 2% on Europe’s STOXX 600 index, after IAG said second-quarter operating profit had risen to 960 million euros (907 million pounds).

This was 5% ahead of the 914 million forecast in an IAG poll of analysts, and up from 900 million last year and a sharp contrast to a 60% fall in first quarter operating profit.

IAG said its revenue per passenger was up 1.1% in the quarter on a constant currency basis up from a fall of 1.4% in the first three months, while fuel unit costs growth came in better than expected at 6.3%.

Passenger revenue per seat kilometre in North America rose 2.9%, from a fall of 2.3% in the previous quarter, while in Europe they improved from a fall of 5.7% in the first quarter to a fall of 1.1% in the second.

“Given all the uncertainties over global growth and Brexit, this looks to be a very strong statement by the company and implies that forward bookings are trending well,” Goodbody analyst Mark Simpson said in a note.


The strong results come days after rival Lufthansa (LHAG.DE) cited intense short-haul competition in Europe for pushing profits down 25% and Ryanair cited a weak fare environment for profit down 21% in the same quarter.

But Walsh, who has trimmed traffic growth plans for the last three months of the year to 3.2% from 5.9% six months ago, said he was not too concerned about oversupply.

“We think the supply environment is going to be OK, certainly in the fourth quarter and going into the first quarter of next year,” he told journalists in a conference call, saying he planned to taper growth in the last three months of the year.

“The economic environment is clearly softening, but it is still reasonably good,” he added.

Air France-KLM (AIRF.PA) this week posted even stronger growth in operating profit of 16% as new Chief Executive Ben Smith’s cost-cutting helped offset fuel cost rises.

While Walsh said he was worried about the economic impact of Britain’s plan to leave the European Union on Oct. 31, he did not see significant regulatory issues and had not yet seen any impact on bookings.

Walsh also said he was in talks to bring forward the first delivery of Boeing’s grounded 737 MAX jet by a year to 2022.

IAG stunned industry executives at the Paris Airshow in June by signing a letter of intent to buy 200 737 MAX jets, with a plan for deliveries between 2023 and 2027.

“We are looking at bringing forward the delivery to 2022, which we think will be possible,” Walsh said.

Source - Reuters

About the author

Philip Scott

Head of Equities, Director

Philip has worked as a Private Client Stockbroker for nearly 20 years, commencing his career in Operations with Rensburg Sheppards (now part of Investec plc) before spending 9 years with Killik & Co advising on and directly managing portfolios. He joined SI Capital in 2006 to head up the Private Client Advisory desk.

Philip is a regular contributor to local media commenting on stock market dynamics and is a Chartered Member of the Chartered Institute for Securities & Investment (MCSI). His RDR qualification gained special recognitionfrom the CISI for achieving the highest combined pass mark in the country for the Investment Advice Diploma in 2012.

“At SI Capital I enjoy being part of a talented team who collectively share the same desire to provide excellence in service.  My focus is to ensure that each client receives effective and optimal management of their assets.”

Philip lives locally, is married with 2 daughters and is an avid sports fan (if now predominantly from the sidelines).  His other interests include music and film.

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