British Airways and Iberia owner International Consolidated Airlines (IAG) said FY profit will ‘inevitably’ miss expectations due to higher fuel prices. However, it said it aimed to recover 60% of the impact through revenue and cost management actions.
Minimal disruption to flights
IAG posted a small increase in Q1 turnover to €7.18 billion and a 77% increase in operating profit to €351 million. It admitted the quarter was ‘relatively unaffected’ by the Middle East conflict but it would have ‘a more substantial impact’ over the FY.
The group is well hedged for this year at 70%, and so far there is no shortage of jet fuel. Given its strong supply chain and inventory, it said the main issue was price rather than availability.
In terms of disruption to flights, the Middle East only represents around 3% of IAG’s capacity, mainly operated by BA. Most of this capacity has been redeployed on routes to Asia where Middle Eastern carriers are operating fewer flights.
BA has added more flights on routes which have more direct demand such as India and Africa to the US. The group will also add flights on routes to alternative ‘winter sun’ destinations like the Caribbean and Sri Lanka.
Today’s lowered guidance isn’t a big surprise, and judging by the market reaction it was more or less priced in. On a positive note, disruption to flights appears to have been minimal and there is no shortage of jet fuel.
The group’s strong brands and leading positions across diverse markets suggest it can weather the storm. Also, despite its debt load, its balance sheet is actually fairly healthy for an airline and it has plenty of liquidity.
Along with operating profit, which was forecast at €5.2 billion, free cash flow will miss the firm’s target of €3 billion. Even so, the group expects to return €1 billion of cash to shareholders by the end of February 2027.
Read the press release here:
https://www.iairgroup.com/investors-and-shareholders
