British Airways owner buoyed by leisure travel resurgence

International Consolidated Airlines Group (IAG) reported operating profits of 1.2bn euros (£1bn) in the three months to September 30, after it swung to a loss of 452m euros (£390m) last year. The resurgence of leisure travel and steady recovery of business trips boosted sales, the FTSE 100-listed airline group said. It took a heavy hit during the pandemic and was still loss-making earlier this year, reporting pre-tax losses of £916m in the first quarter, after the Omicron variant drastically reduced the number of passengers.

But the group reported strong passenger demand in its latest results and saw its revenues just overtake pre-pandemic levels by 0.9 per cent. Its total revenue hit 7.3bn euros (£6.3bn), despite the recent disruption at London’s Heathrow airport and its network in Asia Pacific largely staying closed. Although passenger capacity was still only 81 per cent this year on pre-pandemic levels. And the group said that average spot prices of jet fuel almost doubled this year compared with last.

Prices shot up from March, when Russia’s war in Ukraine began and sparked rising costs for commodities around the world. Furthermore, the airline reported that it had been adversely impacted by fluctuations in foreign exchange rates with the US dollar strengthening 10 per cent against the euro and 7 per cent against the pound in the first nine months of 2022 compared to last year.

Considering the current higher fuel prices and exchange rates, IAG said it expects its full-year operating profits, before exceptional items, to be around 1.1bn euros (£95m).

Luis Gallego, IAG’s chief executive, said: “All our airlines were significantly profitable and we are continuing to see strong passenger demand while capacity and load factors recover. Leisure demand is particularly healthy and leisure revenue has recovered to pre-pandemic levels. Business travel continues to recover steadily.

“While demand remains strong, we are conscious of the uncertainties in the economic outlook and the ongoing pressures on households. Against this backdrop, we are focused on adapting our operations to meet demand, strengthening our balance sheet by rebuilding our profitability and cashflows, and capitalising on our high level of liquidity.”

Derren Nathan, Head of Equity Research at Hargreaves Lansdown, said: “This is no doubt an impressive turnaround from BA’s parent company, and comes despite come ongoing headwinds.

"IAG has reported a significant step up in profitability for all its airlines, which also include Iberia, Aer Lingus and Vueling. Planes are just as full as before the pandemic but IAG is flying less of them. Premium travel is right back up there and that’s going to help profits given the lower capacity, although the recovery in business travel has not been as robust.

"IAG is on track to achieve a significant full year profit, but we’re a little disappointed that net debt is set to go back up between now and the year end, and we think a return to the dividend list could be some way off, particularly as times could start to get tough again.”