ii view: BA owner IAG continues to recover following global pandemic

Strength in both the Europe-US and Europe-Latin American markets, and with full-year 2023 profit hopes raised. Buy, sell, or hold?

First-quarter results to 31 March

• Revenues up 71% year-over-year to €5.89 billion
• Adjusted operating profit of €9 million, up from a loss of €741 million in Q1 2022
• Net debt down 19% to €8.4 billion
• No dividend payment

Guidance:

• Now expects full-year 2023 operating profit to be higher than €2.3 billion
• Now expects net debt at 31 December 2023 to be better than previous guidance of materially flat year on year

Chief executive Luis Gallego said:

"IAG has delivered a strong first quarter financial performance, as Group airlines recovered capacity to close to pre-pandemic levels. Iberia contributed a record first quarter profit and all our airlines performed above expectations, benefiting from robust demand and a lower fuel price in the quarter. We are seeing healthy forward bookings with leisure demand particularly strong while business travel continues to recover more slowly.”

ii round-up:

International Consolidated Airlines Group SA (LSE:IAG) is one of the world's largest airline groups.

It operates a fleet of over 550 aircraft across several brands flying around 94 million passengers annually to over 250 destinations.  

It is a Spanish registered company with shares traded on the London and Spanish Stock Exchanges.

Group brands include UK based British Airways, Spanish airlines Iberia, Vueling, and Level and Irish based Aer Lingus. 

For a round-up of these latest results announced on 5 May, please click here. 

ii view:

Founded in 2011 following a merger between British Airways and Iberia, IAG today competes against rivals like Air France-KLM (EURONEXT:AF) and Deutsche Lufthansa AG (XETRA:LHA) and is a constituent of both the FTSE 100 and IBEX 35 indexes. Along with its various airline brands, it also owns loyalty reward brand Avios. Passenger revenues account for the bulk of sales at 84%, followed by cargo revenues at 7% and other revenues from its loyalty and BA holidays businesses the balance. 

For investors, a cocktail of economic and geopolitical uncertainties persists, with interest rates rising and tensions between the West and both Russia and China showing little sign of easing. Costs for businesses generally remain elevated, pressure to reduce industry emissions under climate change concerns warrants thought, as do factors outside of management’s control such as the weather. Group net debt of €8.4 billion (£7.3 billion) is also similar to IAG’s stock market value of £7.72 billion. 

More favourably, a recovery in passenger demand from the pandemic has been seen. A diversity of both brands and geographical regions is present, including strength between the Europe and the US and Europe and Latin America. Its ongoing attempt to buy Spanish airline Air Europa should also add further to growth potential. A push towards more fuel efficient and climate friendly twin engine planes continues, while a focus on reducing net debt, swollen during the pandemic, is ongoing. 

For now, and while the long list of headwinds which can hinder all airlines should never be forgotten, business is clearly heading in the right direction. A consensus analyst estimate of fair value of over 210p per share also implies room for further cautious optimism.

Positives: 

• Diversity of brands
• Total finance liquidity increased

Negatives:

• Uncertain outlook 
• Dividend payment remains suspended

The average rating of stock market analysts:

Cautious buy