Dealing with waxing and waning consumer demand is difficult at the best of times, but it's arguably toughest for the airlines right now. British Airways owner International Consolidated Airlines Group (IAG) has battled the same issues as its peers: terrorism denting the desire to travel, European air traffic control strikes - the most "extreme" chief executive Willie Walsh can remember - and, of course, Brexit. The latter issue is particularly relevant as the group reports in euros. Management said the company suffered a negative €148m (£125m) currency swing in the second quarter alone.
At group level, revenue per available seat kilometre (ASK) - a key metric for airlines - fell more than 7 per cent to €6.67, while an important counterweight to this, non-fuel unit costs per ASK, were flat at €5.33. This is likely to have influenced the decision by management to cool capacity growth plans, which should see a group increase of 4.5 per cent, down from 4.9 per cent at the start of the year.
The contribution from recent purchase Aer Lingus was described as "very valuable" by chief financial officer Enrique Dupuy. The Irish airline has a transatlantic bias, so it has been less affected by the European strikes, unlike IAG's low-cost Barcelona-based carrier, Vueling, which was hardest hit by the industrial action. The fact that group passenger revenue and operating profits rose in the second quarter with Aer's contribution, but fell without it, highlights the benefit of that purchase.
Managing costs at the group level is even more important if IAG's other airlines are under pressure. Non-fuel unit costs, excluding Aer Lingus and on a constant currency basis, rose 1.3 per cent in the second quarter, but Mr Dupuy stressed that these had fallen by 6.9 per cent in the corresponding period last year, meaning the group retained most of the improvement on costs achieved last year.
Analysts at Liberum expect pre-tax profits of €2.38bn and EPS of 86.8¢ for the year to December 2016, up from €1.82bn and 74.6¢ in FY2015.
| INTERNATIONAL CONSOLIDATED AIRLINES GROUP (IAG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 403p | MARKET VALUE: | £8.55bn | |
| TOUCH: | 402.9-403.2p | 12-MONTH HIGH: | 611p | LOW: 335p |
| DIVIDEND YIELD: | 4.2% | PE RATIO: | 6 | |
| NET ASSET VALUE: | 211p* | NET DEBT: | 165%† | |
| Half-year to 30 Jun | Turnover (€bn) | Pre-tax profit (€m) | Earnings per share (¢) | Dividend per share (¢) |
|---|---|---|---|---|
| 2015 | 10.36 | 412 | 15.8 | nil |
| 2016 | 10.79 | 688 | 26.8 | nil** |
| % change | +4 | +67 | +70 | - |
Ex-div: na Payment: na *Includes intangible assets of €3.04bn, or 143¢ a share †Includes capitalised lease costs **Full-year dividend of 20¢ per share paid on 30 June 2016 £1=€1.19 | ||||
