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IAG's Spanish airline hurt by strikes

Air traffic control strikes in France added €20m to costs at IAG and interfered with plans to expand Vueling
August 3, 2018

Air traffic control strikes in France have wreaked havoc on the European airline sector. At International Consolidated Airlines (IAG), the impact was felt most strongly via its Spanish low-cost brand Vueling. The disruption added €20m (£17.8m) to costs in the second quarter and disrupted plans to expand the airline's route network. Chief executive Willie Walsh said the strikes have had a significant impact on the Spanish economy, as it's made travelling there more difficult for tourists. IAG is filing a complaint to the European Commission regarding the strikes, as are other groups such as easyJet (EZJ) and Ryanair (RYA).

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IAG’s fuel bill also increased by 15 per cent at constant currency during the period, although a 5.1 per cent fall in non-fuel costs meant total cost per available seat fell 2 per cent overall to 6.41¢. The company still expects operating profits for 2018 to grow year on year, as long as passenger unit revenue and non-fuel unit costs improve at constant currency during the second half.

The airline group has continued adding capacity in every market apart from Asia Pacific, up 5 per cent in total during the first half. Thankfully, load factor for the group rose by 1.5 percentage points to 82.4 per cent. A particular area of focus has been the low-cost operator LEVEL, which IAG launched two years ago. Mr Walsh said the group is "committed to accelerating" the budget airline’s growth, the goal being to have seven aircraft stationed between Paris and Barcelona by next year. LEVEL has so far focused on budget long-haul routes, but four planes based in Vienna will start flying shorter routes to 14 European destinations next year. 

Analysts at Liberum reckon IAG will be one of only a few airlines to report profit growth this year. They expect pre-tax profit of €3.09bn in 2018, giving EPS of 122¢, compared with €2.78bn and 106¢ in 2017.

INTERNATIONAL CONSOLIDATED AIRLINES (IAG) 
ORD PRICE:665pMARKET VALUE:£13.4bn
TOUCH:664.8-665.2p12-MONTH HIGH:727pLOW: 581p
DIVIDEND YIELD:3.6%PE RATIO:5
NET ASSET VALUE:386¢*NET DEBT:77%
Half-year to 30 JunTurnover (€bn)Pre-tax profit (€bn)Earnings per share (¢)Dividend per share (¢)
201710.90.7628.3nil
201811.21.6668.3nil
% change+3+118+141-
Ex-div:na   
Payment:na   
*Includes €3.13bn of intangible assets, or 155¢ a share  £1=€1.12