Aarin Chiekrie, equity analyst, Hargreaves Lansdown:
“British Airways owner IAG is flying through the year relatively well given the difficult market conditions. The headline figures may look disappointing at first glance, with broadly flat revenue and second-quarter profits declining at a double-digit rate due to soaring fuel costs. But context is key, and profits held up better than many peers. They were even better than markets expected, thanks to a tight grip on everyday costs and a lower-than-forecast fuel bill.
IAG’s diverse offering is proving invaluable, with capacity rerouted from the Middle East to higher-growth areas. This saw its airline Iberia deliver strong capacity growth, up 18%, as new destinations to Toronto and Newark were added to its offering. Revenues at British Airways continue to benefit from its premium offering and strong corporate travel demand. These have both helped to offset some weakness at Aer Lingus, as stiff competition from US carriers weighed on pricing.
Looking ahead, the market backdrop is likely to remain challenging for some time. But most of IAG’s airlines already operate with structurally higher margins than most peers. Second-half bookings are sitting in line with last year’s level of 57%, and full-year fuel cost guidance has been lowered from €9.0bn to between €8.3-8.6bn, with the group hoping to claw back around 60% of this through higher pricing and trimming costs elsewhere in the business. The balance sheet remains in good shape, and significant free cash flows mean we think IAG should be able to navigate the current market challenges better than most of the competition."
Notes to Editors
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