ii view: IAG reports loss but forecasts profits soon

Having endured the pandemic other challenges are now being navigated. We assess prospects. 

First-quarter results to 31 March

• Total revenue of €3.43 billion, up from €968 million in Q1 2021
• Operating loss of €731 million, up from a loss of €1.07 billion in Q1 2021
• Net debt down 0.6% to €11.59 billion
• Total liquidity rose 3% from year-end to €12.36 billion

Guidance:

• Expects its operating result to be profitable from quarter two

Chief executive Luis Gallego said:

"The Group's operating loss reduced significantly in the first quarter compared to last year, with our losses reflecting normal seasonality, the impact of Omicron and costs associated with ramping up operations.

"Globally the travel industry is facing challenges as a result of the biggest scaling up in operations in history and British Airways is no exception. The welcome removal of UK's stringent travel restrictions, combined with strong pent-up demand, have contributed to a steep ramp up in capacity. The airline's focus at the moment is on improving operations and customer experience and enhancing operational resilience.”

ii round-up:

Airline operator International Consolidated Airlines Group SA (LSE:IAG) today reported a higher than expected first-quarter loss but detailed its expectations to report a profit from the second quarter and then for the full year as a whole.

The owner of British Airways reported an operating loss of €731 million for the quarter, better than the year ago loss of over €1 billion, but below City forecasts of nearer to €550 million.

IAG shares fell by more than 7% in UK trading to leave them down around 6% year-to-date. That’s similar to low-cost airline easyJet (LSE:EZJ), although better than the 30% fall suffered by Eastern European and Ukrainian operator Wizz Air (LSE:WIZZ). 

• Find out what is now being tipped to be the best investment of 2022
• Shares to protect against persistently high inflation
• Shares for the future: my five best shares for long-term investment

Costs to ramp-up operations during the quarter added to the loss for IAG, although other challenges in the wake of the pandemic including IT issues, staff shortages and increased fuel costs following the war in Ukraine all fed into the mix.

Nonetheless, business travel was running at its highest level since the start of the Covid crisis, while premium leisure continued to be its strongest performing segment. Forward bookings remained encouraging with management now expecting to achieve 80% of its 2019 capacity in the second quarter and 85% in the third quarter.

First-half results are likely around the end of July. 

ii view:

International Airlines Group is one of the world's largest airline groups. It operates over 500 aircraft and before the pandemic flew 118 million passengers annually to over 270 destinations. It is a Spanish registered company with shares traded on the London and Spanish Stock Exchanges. Its brands include UK based British Airways, Spanish airlines Iberia and Vueling, and Irish based Aer Lingus. 

For investors, cost headwinds including those relating to the ramp-up of operations and increased fuel costs, are being swallowed. Failures in IT persist, net debt remains elevated, while the pandemic is far from over in parts of the world such as China and Hong Kong. Heightened geopolitical tensions and a possible escalation of the war in Ukraine also overhang, as does pressure on the industry to reduce emissions under climate change concerns. 

On the upside, demand and appetite for travel is being seen and costs to ramp-up operations should prove temporary. Some fuel hedging is being pursued, while both net debt and cash liquidity moved in the right direction over this latest quarter. For now, and while outlook uncertainties give scope for continued caution, a slow emergence from the pandemic does appear to offer room for cautious optimism longer term . 

Positives: 

• Strong and diverse brands
• Significant fund raising previously undertaken

Negatives:

• Uncertain outlook 
• Dividend payment remains suspended

The average rating of stock market analysts:

Buy