The post-pandemic return to profitability is a long haul for IAG. While low-cost carrier Ryanair rang up profits in the third quarter, the BA owner reported an operating loss of €485m and is guiding for €3bn for the full year.
IAG’s portfolio of incumbent airlines are more skewed to long haul and business travellers. As borders creak open — in Australia, Thailand and the US, where foreign nationals can travel freely from Monday — at least some of that business will return. That trend is already in evidence, with booking levels to and from North America almost back at pre-Covid levels last week. Across all routes, passenger capacity doubled quarter-on-quarter to 43 per cent of 2019 levels and is expected to reach 60 per cent in the current quarter.
Financially, it is in stronger shape with €10.6bn of liquidity — up from €8.1bn at end-December and a far cry from September 2020 when it was forced into launching a deeply discounted €2.75bn rights issue. That reflects positive operating cash flow in the latest quarter. Assuming bookings continue to return, UBS sees debt levels starting to whittle back from the second half of next year.
Still, it is the industry’s quiddity that it just cannot catch a break. Passengers are returning but so too are inflated oil costs. IAG’s average full prices for the first nine months of the year were up 40 per cent, admittedly from the Covid-depressed year-ago figure. Rising interest rates bode ill for a company with net debt of €12.4bn, although much of this is currently fixed.
IAG’s performance lags its peers, partly a reflection of its exposure to the UK and US which both had heavy travel restrictions during the pandemic. Over the past year its negative ebitda margins are roughly four times those of Air France-KLM and Deutsche Lufthansa (both of which received state bailouts). Revenue shrinkage over the period is likewise much heftier.
On an EV/forward ebitda basis shares trade above European peers. Unperturbed, investors — initially bearish — ended the morning session pushing the price higher. That leaves a lot riding on full seats as grounded planes return to the skies.
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