31st Oct 2014 11:30
LONDON (Alliance News) - Shares in International Consolidated Airlines Group rose Friday after it posted a rise in third quarter operating profit and revenue on a constant currency basis, with both British Airways and Iberia performing well in the quarter, and said it expects full year profit to be at the top end of guidance.
Shares in the group were up 3.8% to 405.5 pence on Friday, making it the second best performer in the FTSE 100.
Operating profit for the group in the third quarter to September 30 was EUR900 million, up on the EUR690 million a year earlier. British Airways made an operating profit of EUR607 million, up from EUR477 million a year earlier. Iberia's operating profit rose to EUR162 million from EUR74 million.
IAG Chief Executive Officer Willie Walsh said a statement that BA grew capacity in the quarter but retained a focus on cost controls. He said Iberia was boosted by cost cuts and the continued benefits of the restructuring of the business.
On a constant currency basis, revenue for the group rose 6.9%, but it was up 8.5% on a reported basis to EUR5.9 billion. Passenger unit revenue for the group was down 0.9% on a constant currency basis, with fuel unit costs falling 7.5%.
In its traffic report earlier this month, IAG said it saw strong growth in September, with high-margin premium traffic rising 7.6% year-on-year.
Operating profit for the first nine months of the year hit EUR1.1 billion, EUR473 million ahead of the year earlier, though the group said it has taken a EUR82 million charge on currency re-evaluation.
Revenue in the first nine months was up 7.4% to EUR15.2 billion from EUR14.1 billion a year earlier. Revenue passenger kilometres in the first nine months rose 9.5%.
For the full year, IAG said it expects its operating profit to improve by EUR550 million to EUR600 million, implying full-year operating profit of EUR1.3 billion to EUR1.4 billion. The upgrade to the improvement expectation compares to previous guidance for operating profit to rise at least EUR500 million over the year.
"We continued to grow capacity efficiently and both our non-fuel and fuel unit cost performances were strong with the latter boosted by the introduction of new, more efficient aircraft into our fleet," said Walsh.
Jefferies was positive on the third quarter results, saying IAG has defied the warnings from industry peers to deliver another strong set of figures. The broker said it is "increasingly confident in the strategic and structural appeal on offer, with catalysts ahead and a modest valuation."
The broker reiterated its Buy recommendation on the stock and affirmed its price target at 480 pence.
It said IAG confirmed a strong performance during its peak summer trading period, with the operating profit of EUR900 million in line with the top end of estimates. The growth rate on the profit, at EUR210 million, also was well ahead of the EUR128 million improvement in the first quarter and the EUR135 million rise in the second quarter, it said.
The broker said IAG "continues to distinguish itself, strategically and structurally" within the sector, adding that amongst the flag carriers, it is "the only show in town". It said that while it trades at a premium to peers Deutsche Lufthansa AG and Air France KLM SA, it does so deservedly given both of those rivals are structurally weaker. It added the premium is "hardly stretching given the quality of the business emerging".
Liberum was nearly equally effusive in its praise for IAG, reiterating its Buy recommendation and 550 pence price target and saying the results were "further evidence of IAG's superior financial performance and earnings momentum compared with its network carrier peers".
It said the results indicate IAG is benefiting from its past restructuring, allowing it to grow profitably.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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