FTSE 100: British Airways owner IAG returns to profit on strong demand and pricier tickets
British Airways' parent company has returned to profitability, as demand post-COVID surged and the airline hiked ticket prices.
IAG (IAG.L) made an operating profit before exceptional items of €1.26bn (£1.1bn) in 2022, a swing from a €2.97bn loss the year before.
Passenger revenue soared to €19.5bn from €5.8bn during a pandemic-hit 2021 as the group cashed in on an uptick in demand with hikes in ticket prices.
“The increase in passenger revenue of €13,623m was significantly ahead of the increase in passenger capacity, driven by higher yields and higher load factors than in 2021, linked to the reopening of markets, strong pent-up customer demand and increases in ticket prices to reflect a higher cost environment, with higher fuel prices and supplier price inflation, particularly following the outbreak of the war in Ukraine in February 2022,” IAG said.
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The cost of fuel has increased 30% since Russia’s invasion of Ukraine.
Julie Palmer, partner at Begbies Traynor,, said: "In an increasingly uncertain world and the highly regulated aviation industry, I'd expect it will be passengers who pay the price of bringing profits back to where the once were."
The airline operator said it made a strong recovery in its core markets as COVID restrictions were lifted, with revenues surging to £23bn in 2022 from £8bn the year before.
Capacity across the group – which also includes carriers such as Aer Lingus, Vueling and Iberia – was at 87% of 2019 levels in the final quarter of 2022. All its airlines were profitable last year.
The group expects a “further recovery” in profits this year, aiming for an operating profit before exceptional items of €1.8bn to €2.3bn. But, that will depend on the macroeconomic environment, fuel costs, and other cost inflation.
Luis Gallego, the chief executive, said: “2022 was a year of strong recovery, driven by sustained leisure demand and markets reopening.
“At this point of the year we continue to see robust forward-bookings, while also remaining conscious of global macro-economic uncertainties.”
Sophie Lund-Yates, at Hargreaves Lansdown said the return to profit was an “impressive regaining of altitude comes as a direct result of COVID restrictions easing and a return to more normal travel.”
Richard Hunter, head of markets at Interactive Investor, said: "Airline stocks have long been a traditionally hazardous investment, variously affected by virus outbreaks, industrial action, volcanic dust clouds and higher fuel costs. The pandemic added another level of issues, such as for the business class travel which was such a strength of the British Airways offering, and where the adoption of apps such as Teams and Zoom has severely reduced the need for face-to-face meetings.
"The share price performance also puts the scale of the recovery into context. Despite a jump of some 55% over the last six months, the shares have risen by just 5% over the last year, as compared to a hike of 9.7% for the wider FTSE 100.
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“Over both a three and five year period, the shares remain down by 60%. However, and regardless of the headwinds which are currently in plain sight, for the moment the direction of travel is positive. As such, the market consensus of the shares as a buy reflect optimism for further growth prospects.”
The company also said it had agreed to buy out the 80% of Air Europa it does not own for €400m in a move to turn Madrid into a major airport hub.
Gallego said: “This acquisition will enable us to grow Madrid as a hub, offering a gateway to Latin America and beyond, with benefits for customers, employees and shareholders.”
But the European Commission is likely to take 18 months to approve the deal, which may involve “remedy” slots being handed back at Madrid airport to counter the reduction in competition.
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