29th Feb 2024 16:08
(Alliance News) - British Airways owner, International Consolidated Airlines Group SA continues to benefit from the post-Covid thirst for travel although the recovery in the share price could be a long haul.
On Thursday, the Madrid-based airline operator which also owns Iberia, Vueling and Aer Lingus said pretax profit in 2023 multiplied to EUR3.06 billion from EUR415 million a year ago.
In the fourth quarter pretax profit leapt 77% to EUR441 million from EUR249 million.
Operating profit before exceptional items jumped to EUR3.51 billion from last year's EUR1.28 billion and ahead of EUR3.25 billion in 2019. The figure was in line with consensus expectations.
Fourth quarter operating profit before exceptional items rose 5.2% to EUR502 million from EUR477 million.
Revenue in 2023 increased 28% to EUR29.45 billion from EUR23.07 billion and in the fourth quarter by 8.2% to EUR7.22 billion from EUR6.39 billion.
Liberum analyst Gerald Khoo said: "The 2023 results were in line with our forecasts and consensus at the operating profit level. However, we would highlight that forecasts had been raised steadily over the past year.
"The significant improvement in profitability reflected the ongoing restoration of capacity, with improvements in both unit revenues and unit costs".
Richard Hunter, head of markets at interactive investor, commented: "The British Airways owner remains in the ascendancy, with significant revenue and profit growth reflecting passengers returning to the skies in their droves".
He pointed out that on many metrics the figures are starting to resemble pre-pandemic levels, such as overall capacity which now stands at 96% of 2019 figures, boosted by capacity growth of 22.6% over the last year, with the Atlantic markets making a notable contribution.
Hunter explained there is also a growing contribution from alternative sources of revenue, now far in excess of pre-pandemic numbers, which hit EUR641 million for the last quarter and EUR2.5 billion for the year, an increase of 25%.
The main drivers for this alternative source of income comprise Iberia’s third party maintenance, repair and overhaul business, BA Holidays and the IAG loyalty scheme.
For the latter, profit increased by 17% to EUR280 million, with new member growth of 17% lifting the number of passengers on the scheme to 4.9 million.
Hunter noted that despite the obvious economic challenges, the annual holiday seems to have become shielded from day-to-day financial constraints as something of a "must-have".
IAG’s combination of brands serve many different customer types to a multitude of destinations, he added.
Hunter further observed that business travel is recovering more slowly, particularly on short-haul destinations where the advent of virtual meetings may lessen the viability of face-to-face meetings.
Nonetheless, he noted the immediate outlook was also upbeat from the group, confirming its recently announced measures of performance, such as operating margin and a return on invested capital of between 13% and 16%.
For the first quarter of the new year the company is 92% booked, and already at 62% for the second quarter, while IAG is also planning to generate significant free cash flow over the coming year.
This latter point will be key in dealing with what is arguably the biggest thorn in the side for IAG, Hunter thinks, namely net debt, which represents an overhang from the days of the pandemic when the group was forced to ratchet up borrowings to survive.
More generally, the ferocity of competition and economic pressure remain as potential headwinds, as do some of the other issues which have historically blighted the sector, such as virus outbreaks, industrial action, volcanic dust clouds and higher fuel costs, he suggested.
Despite the financial progress, Hunter noted the share price performance reveals a yawning gap which will take a considerable amount of time to close.
"The recovery for IAG will itself be a long-haul journey, although it is one which is being supported by investors for the longer term, with the market consensus of the shares coming in at a buy", he concluded.
Shares in IAG fell 3.1% to 148.07 pence each in London on Thursday.
By Jeremy Cutler, Alliance News reporter
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