British Airways owner IAG: What to expect from the airline group’s earnings
At last, a crack of light. That was the response of most airlines to Boris Johnson’s suggestion that air travel could get going in earnest from 17 May after a full year of grounded planes and sweeping cuts to jobs and routes alike.
Expect this future to be fully in focus on Friday, when airlines group IAG – the owner of UK flag carrier British Airways (BA), along with Iberia and Aer Lingus – reports its full year results.
However, investors will probably be more interested in how the firm’s finances have held up through a cold, cold winter for the sector.
At the end of the third quarter, the firm had already lost £5.1bn due to the aviation shutdown, and with further, more drastic restrictions having come into effect over the last couple of months the damage is unlikely to stop there.
The key metric, says Hargreaves Lansdown analyst Laura Hoy, is cash burn, which stood at an eye-watering $205m a week at the end of September.
Even that is only about half the group’s normal weekly outlay, the result of an all-encompassing cost-cutting programme that has seen IAG slash 10,000 jobs across its various carriers.
It also explains the lengths the firm has gone to pad out its already impressive cash reserves. By the end of the third quarter, it had access to €9.3bn in liquidity – and that’s without tapping the government for money, unlike many competitors in Europe and the US.
According to analysts at Bank of America, that’s enough to last 13 months – and that was before IAG doubled down at the start of this week and agreed a £2bn loan part-guaranteed by UK Export Finance, and also deferring £450m in BA pension contributions.
And in a further show of discipline, the carrier pledged not to reinstate the dividend until 2024 at the earliest.
IAG set to soar as travel returns?
But despite the prospect of more short-term pain, analysts are adamant that the stock’s prospects are strong.
So strong, in fact, that Bank of America analysts lifted their target price to 230p, nearly a third higher than IAG’s shares are currently trading for.
Their optimism is predicted on the return of the transatlantic market, which represented 47 per cent of IAG’s capacity in 2019.
Analysts said that Norwegian’s exit from the lucrative market presented a real opportunity for the group, while the decision to buy Spanish carrier Air Europa to its fleet could also open up more of the Latin American market.
“The addition of Air Europa would establish Madrid as one of Europe’s hubs, competing with Amsterdam, Frankfurt, Heathrow and Paris.
“It would also increase IAG’s market share on the Europe-LatAm routes to 26 per cent from 19 per cent, based on 2019 capacity”, they said.
They also said that the group was much less exposed to business travel revenues – which are expected to take far longer to recover – than other state carriers like Lufthansa and Air France.