British Airways owner International Airlines Group expects annual operating profits to surpass €1 billion after returning to the black in the summer.
The airline group reported a “significant step” up in profitability for all its airlines, which include Are Lingus, Iberia and Vueling, in the three months to September 30.
Recovery in the summer quarter saw a pre-tax loss of €714 million turn into a profit of more than €1 billion.
Total revenue of €7.3 billion was 0.9% higher than in pre-pandemic 2019, despite restrictions imposed at Heathrow and the Asia Pacific network remaining substantially closed.
BA’s capacity for the quarter was in line with previous guidance and operational performance “significantly improved” during the quarter, “with further improvements planned in order to achieve the levels we expect”.
IAG added: “Operational staffing shortages at hubs and airports have required capacity adjustments, including managing the impact on British Airways’ customers and operations of the decision by Heathrow airport to cap passenger numbers.
“The group has pro-actively assessed its schedules to ensure that our customers have sufficient notice of any changes to their flight plans wherever possible and within our control.
“Learnings from the summer disruptions have been identified and actions to improve resilience have been implemented.
“The group continues to work with all critical suppliers to understand any potential disruption within their supply chains from either a shortage of available resource or production delays which could delay the availability of new fleet, engines or critical goods or services.”
Premium leisure revenue across the group fully recovered to pre-pandemic 2019 levels, despite capacity being significantly lower. Business travel revenue recovered to about 75% of 2019’s level.
IAG achieved a third quarter operating profit of €1.2 billion against an operating loss €452 million in the same period last year.
However, non-fuel unit costs were 25.5% higher than 2019 in the third quarter, driven by the lower capacity operated, adverse foreign exchange and inflation.
Operating profit for the first nine months of €770 million compared to a 2021 loss almost €2.5 billion.
IAG’s overall passenger capacity plans are for 87% of 2019 capacity for the final three months of 2022 and 78% for the full year.
Looking forward, the group said: “At current fuel prices and exchange rates, IAG expects its 2022 pre-exceptional operating profit to be approximately €1.1 billion.
“Net cash flow from operating activities is expected to be significantly positive for the year.
“This assumes no further setbacks related to Covid-19 and material impacts from geopolitical developments.
“Net debt is expected to increase by year end, linked to seasonal booking patterns and capital expenditure associated with aircraft deliveries in quarter 4.”
IAG shareholders this week approved the purchase of 50 Boeing 737s and 37 Airbus A320neos for delivery between 2023 and 2028. They will replace existing A320ceo family aircraft “and will contribute to the group’s climate commitments, as well as bringing long-term cost benefits”.
IAG chief executive Luis Gallego said: “We achieved another strong performance in the third quarter, with an operating profit of €1.2 billion and liquidity of over €13 billion.
“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.
“This strong trading performance allows us to continue to invest in our customers, our people and our industry-leading sustainability agenda.”
He added: ”We’re pleased that our shareholders have recently approved the acquisition of 87 new short-haul aircraft that will bring us long-term cost savings, lower carbon emissions as well as an improved customer experience.
“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 re-building our profitability and cashflows and capitalising on our high level of liquidity. This will allow us to allocate capital while investing in a disciplined way in our service and our people, to build capacity and enable future growth.
“As we build back our operational resilience, we are confident in our strengths as a group: first, a portfolio of leading airline brands; second, leading positions in our key markets and hubs; and third, the flexibility afforded by IAG to drive operational efficiency and innovation.
“These will enable us to return to pre-Covid levels of profit and generate long-term value for all our stakeholders.”