24th Feb 2023 11:07
(Alliance News) - International Consolidated Airlines Group SA on Friday said it swung to a profit in 2022, led by higher passenger numbers, as skies got busier after Covid-19 mobility restrictions eased.
The British Airways parent reported a pretax profit of EUR415 million for 2022, swinging from a loss of EUR3.51 billion in 2021. In 2019, the airline reported a pretax profit of EUR2.28 billion.
Operating profit was EUR1.26 billion, 4.7% higher than the median company-compiled consensus of EUR1.20 billion, which had a range of EUR1.07 billion to EUR1.40 billion.
It swung from an operating loss of EUR2.77 billion in 2021, but 2022's figures were less than half of 2019's operating profit of EUR2.61 billion.
Revenue jumped to EUR23.07 billion from EUR8.46 billion in 2021, but was 9.6% below 2019's EUR25.51 billion. Passenger revenue surged to EUR19.46 billion from EUR5.84 billion, but 13% below EUR22.47 billion in 2019.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said that the "impressive regaining of altitude" came as a direct result of Covid restrictions easing and a return to more normal travel.
"As a long-haul specialist, IAG has been one of the last names in the sector to gain momentum following the pandemic. Of course, aviation has flown straight into another hurdle in the form of a cost-of-living crisis. So far it seems pent-up demand for travel is keeping things propped up, but there is a limit to how long this can continue," she said.
Richard Hunter, head of markets at interactive investor, agreed, saying that IAG's path to a full post-pandemic recovery was a "long-haul journey."
"The journey ahead is one which will need careful and constant monitoring as the airline attempts to regain its financial footing.
"Airline stocks have long been a traditionally hazardous investment, variously affected by virus outbreaks, industrial action, volcanic dust clouds and higher fuel costs. The pandemic added another level of issues, such as for the business class travel which was such a strength of the British Airways offering, and where the adoption of apps such as Teams and Zoom has severely reduced the need for face-to-face meetings," Hunter said.
The ii analyst argued that IAG's major task moving forward was repairing its balance sheet after the pandemic tore through its revenue and forced the group into substantial borrowings.
"Over the last year, net debt reduced by EUR1.3 billion given the higher levels of business, but still remains uncomfortably high at EUR10.4 billion and somewhat concerningly seems unlikely materially to reduce further in the coming year according to the group's outlook. While access to liquidity remains high, as the balance sheet repair continues, the return to a dividend payment simply cannot be countenanced, and this is likely to remain the case for some considerable time to come."
IAG declared no dividend for 2022, unchanged from 2021. In 2019, it paid a dividend of 17.0 euro cents per share.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said that IAG's debt pile should start to come down relatively quickly should enough passengers continue to be funnelled onto planes.
"One thing that bodes well for IAG's continued recovery is the unexpected seven-point rebound in consumer confidence, according to GfK," Lund-Yates added.
UK consumer confidence made a surprise rebound from historic lows in February, despite ongoing cost-of-living woes, figures on Friday showed.
GfK's long-running consumer confidence index rose by a significant seven points in February, although the headline score remains at a "severely depressed" negative 38.
"Consumers with more confidence tend to be more willing to part with cash, which could feed through to better-than-expected retail performance. At negative 38 the index isn't in the rudest of health, but it's certainly a step in the right direction," Lund-Yates explained.
Further, IAG's acquisition of the remaining 80% stake in Air Europa for EUR500 million means the company is in the "best position possible to capture as much of the market as possible," according to Lund-Yates.
On Thursday, IAG announced the acquisition of Air Europa for EUR500 million from the Spanish company Globalia.
The group, which also owns the Spanish low-cost airline Vueling, hopes to strengthen its links to the American continent and make Madrid a main European hub.
In a statement, IAG said: "The board of IAG believes that the acquisition remains strategically important for the group and positions it to benefit from growth opportunities in the Latin America and Caribbean market, as well as to increase connectivity to Asia."
Analysts at Davy Research said the acquisition was not "unexpected" and noted that IAG has a "strong track record of maximising synergies from previous acquisitions."
Gerald Khoo at Liberum was more cautious.
"We believe there may still be competition issues posed by the proposed combination. The deal is conditional upon regulatory and other approvals, which management estimates could take around 18 months. Concession to secure approval cannot be ruled out, in our view.
"Management has stated that it expects the deal to have a limited impact on IAG's financial leverage ratios, although we do not have sufficient financial data to assess this, nor to analyse the multiples being paid in absence of data on Air Europa's net debt and leases."
Looking ahead, IAG expects 2023 operating profit before exceptional items to be between EUR1.8 billion and EUR2.3 billion, above 2022's EUR1.23 billion but at least 30% lower than EUR3.29 billion in 2019.
It anticipates an operating loss of around EUR200 million in the first quarter of 2023, narrowed from EUR731 million a year prior, assuming no material impacts from geopolitical developments or setbacks related to Covid. In the first quarter of 2019, it posted an operating profit of EUR135 million.
Russ Mould, investment director at AJ Bell, said the pledge to return to pre-Covid levels of profit in the next few years gives investors "something to look forward to" but also "demands some patience" at a time when there is no dividend to "reward shareholders for sticking around".
Shares in International Consolidated Airlines were down 4.6% at 157.87 pence on Friday in London. Over the past 12-months, the stock is up 7.1%.
By Heather Rydings, Alliance News senior economics reporter
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