Coronavirus - we're here to help
From how to access your account online, scam awareness, your wellbeing and our community we're here to help.

Skip to main content
  • Register
  • Help
  • Contact us
  • Log in to HL Account

IAG - record fine for data breach

George Salmon | 8 July 2019 | A A A
IAG - record fine for data breach

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

International Consolidated Airlines CDI

Sell: 204.30 | Buy: 204.60 | Change -8.90 (-4.17%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

The Information Commissioner's Office (ICO) has told IAG it intends to levy a fine of £183.4m on the group for its loss of customer data, which IAG first disclosed on 6 September 2018.

IAG has said it is 'surprised and disappointed', and will be entering into a dialogue with the ICO around the proposed fine.

The shares moved slightly lower on the news.

View the latest share price and how to deal

Our view

The ICO fine is an unwelcome distraction, but IAG should be able to withstand the impact. It's a one-off hit, is less than 10% of next year's expected profits and could yet be reduced on appeal. However, that's not to say improvements aren't required. The ICO could levy up to 4% of a business' turnover - and in British Airways' case that would have been closer to £500m.

A repeat could be even more painful if the worries around a disorderly Brexit turn to reality. Demand for First and Business class berths turns off and on like a tap as the economy rises and falls. IAG hasn't seen any change in behaviour yet, but potentially variable revenues and a large fixed cost base make the unknowns around the UK's impending exit from the EU a worry.

Perhaps with the inherent cyclicality of running premium brands like British Airways and Iberia in mind, IAG is exploring building out lower-cost services. IAG had wanted to bolster its offering by acquiring rival operator Norwegian, but after at least two failed approaches decided the price wasn't going to be right. Its LEVEL and Vueling brands are growing, while transatlantic flights from Barcelona have kicked off its first foray into the low-cost long-haul market.

For now though, the focus remains on the core, premium brands. Profitability has been boosted by low fuel prices, which has in turn led to healthy dividend increases and chunky share buybacks. But that tailwind is running out of puff. If IAG is to keep profits up, it'll need to improve efficiency elsewhere.

Recent updates have brought good news on this front, and the group is confident it can reduce costs and increase revenue per seat for the remainder of this year. While that's encouraging to hear, investors should remember that much of IAG's destiny remains out of its hands and there are numerous uncertainties around.

That probably explains why the group's trading at 1.5 times book value, a more conservative way of valuing intensely cyclical and asset-heavy businesses like airlines, and on just 4.5 times expected earnings. That's below the longer-term average on both measures.

The shares are priced to yield 6.3% in 2020.

Register for updates on IAG

First quarter results, 10 May 2019

IAG continues to add capacity, with total ASKs (available seat kilometres) rising 6.1% to 75.4bn. A slight increase in seat factor, to 80.7, shows its 582 planes were slightly fuller than at this time a year ago, but pressure on pricing, the timing of Easter and a slight fall in cargo revenue ensured group revenue rose just 5.9% to EUR 5.3bn.

However, with higher fuel prices driving operating costs up 10.7%, underlying operating profit fell 60.3% to EUR135m. After excluding the impact of a stronger dollar and other currency moves, that still represents a 51.6% fall.

While non-fuel costs rose 6.9%, that represents a slight decline at constant exchange rates on a per ASK basis. The main driver of the extra costs was a 22.8% increase in fuel oil and emission charges, which rose to EUR1.4bn, or 11.1% at constant exchange rates on a per ASK basis.

IAG's adjusted net debt at the end of the quarter was EUR5.2bn, which equates to a net debt to EBITDA ratio of 1.

Looking ahead, the group says it expects both passenger revenue per available seat kilometre (ASK) and non-fuel costs per ASK to improve over the year, such that full year operating profits will be broadly flat on 2018.

Find out more about IAG shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.