British Airways owner International Consolidated Airlines Group (IAG) helped lead the FTSE 100 on Friday after releasing knockout financials for the first half of 2023.
At 162.2p IAG’s share price was 4.7% higher in end-of-week trading.
The airline group said that revenues climbed 45% in the six months to June, to €13.6 billion. As a result the firm swung to an operating profit of €1.3 billion from a loss of €417 million a year earlier.
IAG said that its record first-half profits were thanks to “sustained strong demand across our network and particular outperformance from our Spanish businesses.”
Capacity improved to 94% of pre-coronavirus levels in the first half, it said, up from 86.6% during the final quarter of 2022. The business expects capacity for the full-year to reach 97% of 2019 levels, though this is down 1% from guidance provided back in February.
Net debt dropped to €7.6 billion in the first half from €10.4 billion a year earlier. Consequently the company’s net-debt-to-EBITDA ratio more than halved to 1.5 times. The firm also said it expects to generate sustainable free cash flow in 2023.
Alluding to the rising pressure on consumer spending, IAG said that “there is no sign of weakness in forward bookings” as yet, noting that it is 30% booked for the fourth quarter. It commented that this is usual for this time of year.
But the firm added “we continue to be mindful of wider uncertainties” which include “the potential impact of geopolitical and macroeconomic volatility on the price of fuel and consumer confidence, as well as the impact of external factors on the operating environment, such as strikes.”
“Strong Performance”
Chief executive Luis Gallego said that “these results are thanks to a strong performance from all companies across the group,” and predicted that capacity will reach pre-pandemic levels by the end of the year.
He added that “customer demand remains strong across the group, particularly for leisure travel, with around 80% of passenger revenue for the third quarter already booked.”
Gallego said that IAG workers “have put in place plans to support operations during the busy summer period.”
“Not Out Of The Woods”
Adam Vettese, analyst at eToro, said that IAG’s results provided “proof – if it was needed – that airline stocks are once again soaring.”
Noting “a major uplift in passenger numbers and therefore revenue and profitability,” he added that “IAG is a far healthier company now too, generating higher levels of cash and carrying much lower net debt, leading to an improved balance sheet.”
While describing the company’s outlook as “strong,” Vettese added that fuel prices and industrial action pose a threat during the second half of 2023.
Analyst Sophie Lund-Yates of Hargreaves Lansdown, noted that holidaymaker demand is “holding up” and said that “capacity is almost fully restored to pre-pandemic levels, which gives the airline group the best chance of capitalising on demand.”
However, she added that the FTSE 100 business “is not out of the woods,” and commented that bookings could slow in the months ahead as consumer sentiment weakens.
Lund-Yates also said that “the outlook for business demand is murkier than leisure, and this corner of the market is a lot more important to IAG than it is for the likes of easyJet.”
Read the full article here
