British Airways owner scrapes profit despite fare war

Bloomberg

IAG SA eked out a profit in the first quarter even after the impact of a European fare war that pushed its biggest rivals to a loss.
Shares of the British Airways owner rose as much 5.1% after it posted an operating profit of 135 million euros ($151 million), while reiterating its full-year guidance and predicting that pricing will pick up in coming months.
The earnings figure was still 60 percent down from a year earlier as higher fuel costs and the timing of Easter further eroded margins. Deutsche Lufthansa AG reported a 336 million-euro loss and Air France-KLM Group suffered a 303 million-euro shortfall.
“Most European airlines have been reporting losses in the quarter. That’s what sets us apart,” IAG Chief Executive Officer Willie Walsh said on a conference call. He suggested that the “capacity issue” is set to ease and stood by a forecast for annual earnings in line with last year’s 3.48 billion euros.
London-based IAG, which hit a two-year low, traded 4.4 percent higher at 510.60 pence in the UK capital. That pared the stock’s slide this year to 17 percent, compared with declines of 5 percent and 7.4 percent at Lufthansa and Air France-KLM respectively.
IAG’s passenger unit revenue, a measure of fares, fell 0.8 percent at constant currencies in the quarter, with declines sharpest in Europe and on routes to Latin America. Walsh said Brazil and Argentina were especially weak amid an economic slowdown, with demand also “softening” on routes to South Africa.
The lucrative North Atlantic market, by contrast, remained buoyant, with forward booking trends also positive, according to the CEO, who also said there’s no evidence that confusion surrounding Britain’s exit from the European union is impacting demand.
The fuel bill came in 16 percent higher, but IAG is more than four-fifths hedged for the rest of the year so that the increase in costs should moderate before reversing in 2020.
Walsh said he’ll trim IAG’s capacity plans in response to market conditions, with the company now set to boost seating 5.3 percent for the year rather than 5.9 percent. Though that compares with a 6.1 percent hike in 2018, it’s still more bullish than plans at Lufthansa.
Groundings of Boeing 787 jets equipped with the latest Rolls-Royce engines for maintenance checks are “annoying” and will disrupt some flights this summer, according to Walsh, who also confirmed that delayed deliveries of the Airbus A321neoLR plane to Irish unit Aer Lingus will put back the launch of a new route to Montreal.