5th May 2023 13:48
(Alliance News) - Stock analysts were pleased with International Consolidated Airlines Group SA's results on Friday. as it reported a profit in the first quarter.
IAG "enjoyed a very important milestone" by unveiling its first operating profit since the pandemic in the seasonally weaker first quarter, said AJ Bell investment director Russ Mould.
IAG, the London-based parent company of British Airways and Spain's Iberia, said pretax loss for the first three months of 2023 narrowed substantially to EUR121 million from EUR916 million a year prior.
It swung to an operating profit of EUR9 million in the quarter from an operating loss of EUR718 million a year before. IAG noted that this was its first operating profit in the first quarter of the year since the first quarter of 2019, thereby recovering to pre-pandemic levels.
Revenue was EUR5.89 billion, up 74% from EUR3.44 billion the year before. This was driven by Iberia's performance for the quarter, as well as improved passenger capacity levels post-pandemic.
"The company is benefiting in two ways. Easing oil prices have helped with fuel costs, while passenger demand has been robust," said AJ Bell's Mould.
"Crucially, and despite the pressures on household budgets, jetting away continues to be prioritised when it comes to spending decisions and bookings are healthy."
Liberum's Gerald Khoo said the results were "surprisingly strong", with IAG benefitting from both a strong unit revenue environment and lower fuel prices. Khoo added that this "was impressive for the seasonally weakest quarter."
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, noted that business travel remains "sluggish", despite the company being in "much better shape overall".
AJ Bell's Mould agreed: "There is one fly in the ointment. The rebound in business travel, an important area for the group, remains sluggish and three years on from the start of the pandemic there may be fears this is becoming a structural issue with companies no longer as willing to fund these kinds of trips as regularly."
Olly Anibaba, an analyst at Third Bridge, took a more positive view. "While business travel is recovering more slowly, the surge in demand for premium leisure travel could help offset some of the losses," he said.
Looking ahead, IAG noted an "encouraging" outlook for the summer period, with around 80% of its second quarter revenue booked. The company also expects its operating profit to be above the top end of its 2023 guidance of EUR1.8 billion to EUR2.3 billion.
Khoo, Liberum, said: "The outlook for the summer is encouraging, with demand remaining strong across all of IAG’s airlines and regions, especially for leisure customers." He added that Liberum sees upward pressure on consensus estimates, citing Bloomberg's consensus operating profit forecast for 2023 of EUR2.1 billion and its own of EUR2.3 billion.
Customer demand currently remains strong, and passenger capacity is expected to be around 97% of 2019 levels for the full year, as the company focuses on its core markets, IAG said.
Hargreaves Lansdown' Lund-Yates said "consumers continue to prioritise time away despite the considerable pressures on income".
IAG Chief Executive Officer Luis Gallego said: "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.
"As we return to more normal operations, we continue to invest in sustainability, including more fuel-efficient aircraft, and in customer experience, updating the business cabins for British Airways and Iberia. Over the past year, we have recruited thousands of new employees across the group and strengthened our operations so that we are ready to deliver for our customers during the summer peak."
Shares in IAG were up 1.4% at 149.10 pence each in London on Friday afternoon.
Liberum reiterated its 'buy' recommendation, with a target price of 240p.
By Sophie Rose, Alliance News reporter
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