IAG flew 65.1% of pre-pandemic capacity, compared to 19.6% in 2021. Higher capacity increased costs, and IAG reported an underlying operating loss of €754m in the first quarter. That's an improvement on last year's -€1.1bn.
Demand is ''recovering strongly'', and in-line with expectations. As such, the group expects to be profitable from next quarter.
The shares fell 5.8% following the announcement.
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Our view
The market hasn't taken kindly to IAG's tempering of capacity expansion, following flight cancellations earlier in the year. Another round of enormous operating losses does little to lift sentiment either.
But we think this is a touch unfair. Away from the noise, IAG's recovery is primed and ready for take-off.
Capacity is climbing towards normal levels. Barring any additional disruption, the group's expecting to post a profit from next quarter.
If the group can squeeze more euros out of each additional passenger, the speed of recovery will be that much faster. That is a status quo we expect the group to be able to get back to, courtesy of its enormous cost saving and streamlining efforts over the last few years. At the moment, costs are soaring because of the rate at which it's ramping up capacity, and while planes aren't quite full enough, it's dragging profits with it.
The more nimble cost base gives IAG more flexibility when it comes to ticket prices. Some of the short haul carriers have had to lower ticket prices to entice passengers, a trend that could materialise for long haulers as well. Stoking demand is important over the next year and price is one of the few levers IAG has to pull. Rising inflation could make people more price sensitive when it comes to booking flights, so there's a limit to how much the group can charge for tickets.
IAG still has a long journey ahead. We worry that the past two years of staycationing could see travellers stick closer to home to save money once again this year. The crisis in Ukraine could also knock confidence.
Another year of tepid passenger numbers would likely have a big impact. The group's lugging around an eye-watering debt pile. Even if the group's operations progress as planned, shareholder returns will take a backseat to debt management for a long time to come.
We should note that IAG's price-to-book value shot upwards over the past year. The group's taken on a lot of loans in that time, and sold off over €1bn worth of assets, which has depressed its book value (what's left after all of its debts have been paid). That makes it more difficult to value IAG shares.
It seems the worst is over for IAG and we view the current risks to demand as relatively minor all things considered. There's an opportunity for shares to rerate if passengers come roaring back. But until we have hardened proof of full planes and a full schedule, there's an element of caution alongside our optimism.
First Quarter Results
Total revenue rose to €3.4bn, up significantly from €963m, largely reflecting the higher capacity and the easing of travel restrictions. Passenger revenue per available seat kilometre (ASK) rose 76.3%.
Load factor, which shows how full each plane is, reached 72.2%, which is the highest level since the pandemic.
Higher costs were driven by increased training and maintenance programmes, employee costs and a €692m increase in fuel costs. There was also a €954m increase in supplier costs, partly driven by inflation.
Luis Gallego, CEO, said: ''As a result of the increasing demand, forward bookings remain encouraging. We expect to achieve 80% of 2019 capacity in the second quarter and 85% in the third quarter. North Atlantic capacity will be close to fully restored in the third quarter.''
Net debt was €11.6bn at the end of the quarter, down €74m. Cash flow from future bookings offset capital expenditure.
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