IAG Profit Propelled By North American Tailwind
Growing revenues in North America and an easing in fuel cost growth have helped Aer Lingus owner International Airlines Group (IAG) to exceed profit forecasts for the first half of its key summer period, lifting its shares.
IAG CEO Willie Walsh said, "Despite fuel cost headwinds, we delivered a good performance. We're on track to meet our financial targets."
IAG's second-quarter operating profit rose to €960 million, up from €900 during the same period last year. This was 5% ahead of the €914 million forecast in an IAG poll of analysts, and a sharp contrast to a 60% fall in first quarter operating profit.
IAG said its revenue per passenger was up 1.1% in the quarter on a constant currency basis, up from a fall of 1.4% in the first three months of 2019, while fuel unit costs growth came in better than expected at 6.3%.
Passenger revenue per seat kilometre in North America rose 2.9%, from a fall of 2.3% in the previous quarter, while in Europe, they improved from a fall of 5.7% in the first quarter to a fall of 1.1% in the second.
"Given all the uncertainties over global growth and Brexit, this looks to be a very strong statement by the company and implies that forward bookings are trending well," Goodbody analyst Mark Simpson said in a note.
The strong results come days after rival Lufthansa cited intense short-haul competition in Europe for pushing profits down 25% and Ryanair cited a weak fare environment for profit down 21% in the same quarter.
But Walsh, who has trimmed traffic growth plans for the last three months of the year to 3.2% from 5.9% six months ago, said he is not too concerned about oversupply.
"We think the supply environment is going to be okay, certainly in the fourth quarter and going into the first quarter of next year," he told journalists in a conference call, saying he plans to taper growth in the last three months of the year.
"The economic environment is clearly softening, but it is still reasonably good," he added.
Air France-KLM this week posted even stronger growth in operating profit of 16% as new CEO Ben Smith's cost-cutting helped offset fuel cost rises.
While Walsh said he is worried about the economic impact of Britain's plan to leave the European Union on October 31, he said he does not see significant regulatory issues and has not yet seen any impact on bookings.
Walsh also said that he was in talks to bring the first delivery of Boeing's grounded 737 MAX jet forward by a year to 2022.
IAG stunned industry executives at the Paris Airshow in June by signing a letter of intent to buy 200 737 MAX jets, with a plan for deliveries between 2023 and 2027.
"We are looking at bringing forward the delivery to 2022, which we think will be possible," Walsh said.