Investors prepare to see if British Airways owner will soar this summer
British Airways owner IAG is set to report its half year results this Friday, amid what is widely touted as the most important summer for airlines in years.
Aviation has experienced an extraordinary boom in demand over the last six months as it enters the first truly restriction free, high volume period since before the pandemic.
While holidaymakers have not yet been put of travelling by the cost of living crisis, recent updates from budget airlines Ryanair and Easyjet have, despite being largely positive, tempered expectations slightly.
Ryanair in particular struck a more cautious tone in its quarterly results on Monday and lowered its passenger forecasts for the rest of the year to 183.5 million, down from 185 million, despite profits flying past pre-pandemic levels to £572m.
Alongside Boeing delivery delays, Chief Michael O’Leary honed in on European flight disruption and airspace restrictions, namely as a result of French air traffic control strikes, which have plagued both Easyjet and the Irish carrier.
Earlier in July, Easyjet axed 1,700 summer flights as a result of airspace limits over Ukraine and the ATC walk-outs and in a subsequent trading update, warned of a performance hit from “unprecedented” levels of disruption despite reporting record pre-tax profits of £203m.
Whilst these issues won’t prevent this summer from being one of the busiest on record, they have certainly dampened excessive talk of bumper profits and a trouble-free end to the pandemic-induced lull.
Unrelenting pressure on consumers and households has tempered forecasts further, particularly for the coming winter.
Conroy Gaynor, aviation analyst at Bloomberg Intelligence, said “there is a growing concern that the yield environment for European airlines is losing buoyancy, this is partly technical due to tougher comparisons on growth being met from last year, but also because pent-up travel demand and household finances may be dwindling.”
Gaynor noted the “tight” airspace and “unfortunate” ATC strikes, but flagged self-inflicted problems such as “staff shortages and IT failures” as a potential risk over the summer peak.
Long-haul specialist IAG faces other concerns as well, with legacy carriers relying heavily on strong transatlantic demand and the re-opening of Asia, but Gaynor noted “visibility is limited for the winter.”
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said that IAG will be firmly “in the spotlight” of investors this week.
“The group is a long-haul specialist, which is a potentially trickier demographic than cheap and cheerful shorter trips. That said, we can see that broader trends for the sector have positive read-across for IAG – especially looking at the record profits Easyjet recently reported.”
“IAG should be in a position to continue” positive demand trends, she argued, but “commentary on forward bookings will be significant, especially considering the transatlantic market share pressures British Airways is facing.
Lund-Yates noted that despite concerns, consumers were still “prioritising holidays,” although she said that the cost of living “remains highly elevated,” and airlines could be affected as consumers continue “to deplete their accrued savings.”
That being said, IAG is yet to show any major signs of a poorer than expected performance. In May, the group enjoyed its first first-quarter profit since prior to Covid-19, upping its guidance for the year for operating profit from €1.8bn to €2.3bn.