International Airlines Group (IAG) has revealed its second quarter revenue increased by 9.5% on the same period last year driven by increased passenger numbers.
Second-quarter revenue was €6.8 billion with passenger revenue increasing to €6 billion with a 5.4% increase in available seat kilometres (ASKs).
Its load factor stood at 85, up 1 percentage point from 84 experienced in the same period last year.
Quarterly underlying operating profit rose 6.7% to €960 million, however, this was offset by increased fuel and aircraft costs driving operating costs up 10%.
Overall, IAG, which owns British Airways among other airlines, posted that its profits for the half as a whole fell 11.7% to €1.1 billion.
IAG has announced plans to order eight new aircraft from airbus and intends to purchase 200 from 737s from Boeing. These planes should join the fleet from 2023.
George Salmon, analyst from Hargreaves Lansdown, commented: "A £183 million fine from the Information Commissioner's Office for data loss is an unwelcome distraction, but IAG should be able to withstand the impact. It's a one-off hit, is less than 10% of next year's expected profits and could yet be reduced on appeal. However, that's not to say improvements aren't required. The ICO could levy up to 4% of a business' turnover - and in British Airways' case that would have been closer to £500 million.
"A repeat could be even more painful if the worries around a disorderly Brexit turn to reality. Demand for First and Business class berths turns off and on like a tap as the economy rises and falls. IAG hasn't seen any change in behaviour yet, but potentially variable revenues and a large fixed cost base make the unknowns around the UK's impending exit from the EU a worry.
"Perhaps with the inherent cyclicality of running premium brands like British Airways and Iberia in mind, IAG is exploring building out lower-cost services. IAG had wanted to bolster its offering by acquiring rival operator Norwegian, but after at least two failed approaches decided the price wasn't going to be right. Its Level and Vueling brands are growing, while transatlantic flights from Barcelona have kicked off its first foray into the low-cost long-haul market.
"For now though, the focus remains on the core, premium brands. 2018 profitability was boosted by low fuel prices, which has in turn led to healthy dividend increases and chunky share buybacks. The shares offer a prospective yield of 6.9%.
"But that fuel tailwind is running out of puff. If IAG is to keep profits up, it'll need to improve efficiency elsewhere. Recent updates have brought good news on this front, and the group is growing revenue per seat ahead of non-fuel costs. We think that's encouraging to hear.
"However the shares have been weighed down by the potential uncertainties ahead, which means they trade at 1.4 times book value, a more conservative way of valuing intensely cyclical and asset-heavy businesses like airlines. The PE ratio is just four times expected earnings. Both measures are well below the longer-term average.
"That could look attractive to investors willing to stomach the macro risks."