International Consolidated Airlines Group (IAG), parent company of British Airways, Aer Lingus, Iberia and Vueling, has reported a record third quarter profit with “strong trading” across the Group and a “significantly stronger balance sheet”.
IAG posted operating profit before exceptional items of €1,745 million in the third quarter of 2023, compared to €1,216 million in the year-ago period. IAG’s operating margin was 20.2% up from 16.6% in 2022. Total revenues reached £8,646 million, up from £7,329 in Q3 2022.
IAG credited this strong performance to an increase in capacity, passenger revenue and lower costs.
IAG increased capacity, measured in available seat kilometres (ASKs) 17.9% on last year, supported by 20 aircraft deliveries year to date. Passenger unit revenue increased by 2.2% year-on-year (up by 24.6% compared to 2019) due to “continued strong demand from leisure travel”. Non-fuel unit costs for the quarter were 3.5% below Q3 2022 despite a c.1.0 percentage point impact from higher disruption across the business, including the UK NATS systems outage in August. And fuel unit costs for the quarter were down 6.2% year on year.
IAG also continued to strengthen its balance sheet reducing gross debt by €2.4 billion to €17.2 billion at September 30, 2023 versus June 30, 2023, with £2.0 billion UKEF-backed loan repaid early and €0.5 billion IAG bond repaid on maturity. Consequently S&P upgraded IAG and British Airways to Investment Grade.
The group noted that overall customer bookings for the fourth quarter are as expected, adding that the airline expects 2023 to be a year of “strong recovery in our margins, operating profit and balance sheet and towards pre-COVID-19 levels of capacity”.
Luis Gallego, International Airlines Group's CEO, said: ”This quarter represents a record third quarter performance for IAG. This is allowing us to invest in the business and reduce a significant amount of our debt.”
Gallego added that the company will continue to develop its hubs in Barcelona, Dublin, London and Madrid, supported by fleet deliveries and future orders.
“Our strong financial performance is enabling investment in our people and allowing us to further improve customer experience. At the same time, we will keep working towards our sustainability goals,” he said.
For the nine months to end September, IAG revenues topped £22,229 million, up from £16.680 million in the year-ago period. Operating profit rose to £3,000 million in the nine month period up from £801 million last year.
Aer Lingus total revenue increased by 16% driving strong profit growth and operating margins of 25.5%, despite cost headwinds. Capacity increased by 15% across both long-haul and shorthaul over the summer. Aer Lingus reports particularly strong performance of its premium leisure on the transatlantic network, driving record load factors in business cabins.
British Airways total revenue grew by 20% in the quarter, on capacity growth of 25%, in particular through strong leisure demand. Profits increased by 50% year-on-year as capacity increases drove strong non-fuel unit cost performance (-7.6%), despite disruption costs. Operating profit was £617 million and the operating margin was 15.3%. Capacity growth focused on increased frequencies and higher gauge aircraft, as well as rebuilding the Asian network.
Strong trading across the network at Iberia has driven an increase in total revenue of 19%, with capacity growth of 18% and passenger unit revenue growth of 5%, with leisure continuing to be strong and corporate travel mainly recovered to pre-Covid levels. Profit increased by 76% to €449 million and margins to 23.1%.
Vueling delivered a record operating profit (€282 million) and margin for the quarter of 26.1%. Transformation initiatives are driving strong performance across all areas: higher load factors at 94% and ancillary revenue of €29 per passenger; robust cost control to offset inflationary headwinds. IAG stated that Vueling is maintaining capacity at 2019 levels while negotiations continue with pilots towards agreeing a sustainable collective agreement, with a cabin crew agreement secured earlier in the third quarter.
IAG reports that its loyalty programme continued to drive good revenue growth in Q3 2023 as total revenue increased by 57%. The quarter was the highest ever for Avios issued and redeemed by customers, as well as a record quarter where 1.3 million customers joined IAG programmes.
IAG Cargo business continues to see declines in revenue and profit as industry supply continues to exceed reducing demand for air freight. Cargo yields remain above 2019 levels, said IAG.
IAG reports that its fleet deliveries continue to be on schedule. During the nine months to September 30, 2023 IAG had 20 aircraft delivered, comprising 12 narrowbody aircraft across all airlines and eight widebody aircraft to British Airways and Iberia.
During the quarter, IAG confirmed an incremental aircraft order for six 787-10s for British Airways and one Airbus A350-900 for Iberia.
IAG stated that it is continuing to “monitor and manage” the situation with regards to metal powder contamination in Pratt & Whitney (P&W) GTF engines. IAG currently has 32 aircraft that it considers to be in the scope of the issues that P&W has raised (less than 10% of IAG's short haul fleet) and stated it is “taking steps to mitigate prospective time out of service of those aircraft over the next three years”.
IAG now expects full year 2023 capacity to be around 96% of pre-COVID-19 levels, with 75% of the fourth quarter's passenger revenue already booked.
IAG expects non-fuel unit costs for the full year 2023 to be at the lower end of previous guidance of 6% - 10% improvement on full year 2022, due to the higher level of disruption. The company is 73% hedged on fuel for the fourth quarter, with total fuel costs expected to be c€7.6 billion for the full year.