6th May 2022 11:01
(Alliance News) - International Consolidated Airlines Group SA on Friday promisingly said it expects to post its first post-pandemic annual profit, though a plan to moderate capacity growth plans was a sticking point for investors.
IAG shares were 7.4% lower at 132.78 pence each in London on Friday morning. The wider travel sector also struggled, though not by as much as the British Airways parent. easyJet PLC shares were down 0.6% at 514.60p, while Wizz Air Holdings PLC was down 2.3% at 2,925.00p.
"The travel sector has hit fresh turbulence at a time when there were high hopes that pent up demand would be dramatically reviving its fortunes. The slide was sparked by British Airways parent company IAG disappointing investors with news that although it's flying back into profitability, it's slowing expansion plans," Hargreaves Lansdown analyst Susannah Streeter commented.
IAG said its British Airways arm is "focusing on improving operations and customer experience. This includes "moderating planned capacity at Heathrow".
Sophie Lund-Yates, also an analyst at Hargreaves Lansdown, said boosting capacity too soon could hit IAG's bottom line.
"Planes aren't quite full enough, or frequent enough, which means the costs associated with getting things going again are stifling profits," the analyst explained.
Still, IAG expects to achieve 80% of of 2019 capacity in the second quarter of 2022, before rising to 85% in the third quarter and 90% in the fourth.
Chief Executive Officer Luis Gallego added: "North Atlantic capacity will be close to fully restored in the third quarter."
For the three months ended March 31, IAG reported an after-tax loss of EUR787 million, narrowed from EUR1.07 billion in the first quarter last year, as total revenue more than tripled to EUR3.44 billion from EUR968 million. On a pretax basis, IAG's loss narrowed to EUR916 million from EUR1.22 billion a year before.
IAG said the continued easing of government-imposed travel restrictions, in the UK in particular, resulted in improved travel demand. IAG, which also owns Iberia and Aer Lingus, has seen no noticeable hit from the war in Ukraine.
As such, IAG said it expects to be profitable from the second quarter onwards and for the full year of 2022. The buoyant profit forecast sticks out, though analysts noted IAG still faces worries related to inflation and consumer confidence.
AJ Bell analyst Russ Mould commented: "After the chaos of the past two-and-a-bit years, most households would love to have a break from everyday life and enjoy a taste of paradise. Travel companies have been patiently waiting for the day when bookings went up and Covid-related restrictions faded away. We're now edging towards this point in many parts of the world. Unfortunately, there's a new stumbling block in the form of a potential recession.
"Travel companies had hoped people would use the cash they'd saved during various Covid lockdowns to fund a nice foreign holiday or domestic break. For many, that cash is now needed as a buffer to help pay ever-rising bills. Were it not for the pain of inflation, these travel companies would be singing from the rooftop."
By Eric Cunha; ericcunha@alliancenews.com
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