BA owner IAG quarterly profit hit by fuel costs despite strong demand
International Consolidated Airlines Group SA reported a sharp fall in second-quarter profit on Friday as higher fuel costs and disruption from the Middle East crisis offset resilient travel demand, although the British Airways owner maintained its full-year guidance.
Pretax profit for the three months to June 30 fell 34% to EUR995 million from EUR1.51 billion a year earlier, while revenue edged up 0.2% to EUR8.88 billion from EUR8.86 billion.
Operating profit before exceptional items declined 16% to EUR1.41 billion from EUR1.68 billion, although it beat the EUR1.37 billion median of company-compiled analyst consensus.
For the first half, revenue rose 1.0% to EUR16.06 billion from EUR15.91 billion. Pretax profit fell 19% to EUR1.42 billion from EUR1.75 billion, while operating profit before exceptional items slipped 6.4% to EUR1.76 billion from EUR1.88 billion.
Chief Executive Luis Gallego said the group's "excellent fundamentals" continued to support shareholder value despite "the impact of the crisis in the Middle East and wider geopolitical events".
IAG said second-quarter revenue was affected by the Middle East crisis and the timing of Easter, while the group flew lower capacity than planned because of the disruption. It added that British Airways delivered a "very good" revenue performance in North America during the first half.
Higher fuel prices remained a drag on earnings, although IAG reiterated that it expects to recover around 60% of the increased fuel costs through revenue growth and cost initiatives, in line with previous guidance.
Net debt narrowed to EUR4.69 billion at June 30 from EUR5.95 billion at the end of December, while first-half free cash flow increased to EUR2.91 billion from EUR2.10 billion a year earlier.
Looking ahead, IAG said demand for travel across its network remains strong. The group is around 57% booked for the second half of the year, with booked revenue in line with the same point last year.
IAG expects long-haul markets to remain positive while short-haul markets stay competitive. It reiterated guidance for a full-year operating margin within its 12% to 15% target range, alongside significant free cash flow generation and a strong balance sheet.
The company also warned that Heathrow Airport's expansion plans could affect future traffic growth, network planning and fleet decisions if higher airport charges are passed on to airlines.
Shares in IAG were down 0.5% at 436.50 pence in London on Friday morning. In Madrid, its shares were 0.9% lower at EUR5.08.
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