The owner of British Airways has upgraded its full-year profit expectations thanks to strong demand for holiday travel, as the airline group said it expected to fly almost the same number of passengers this year as it did before the coronavirus pandemic.
International Airlines Group (IAG) reported a first-quarter profit for the first time since 2019, before the travel industry was plunged into chaos by Covid lockdowns. It made an operating profit of €9m (£7.9m) in the first three months of the year.
Since the end of most global travel restrictions airlines have been racing to restart routes, with demand for holidays in particular soaring and business travel also recovering, albeit more slowly.
British Airways was benefiting from strong demand for leisure travel on long- and short-haul routes, the group said.
IAG, which also owns the Spanish flag carrier Iberia and the budget airline Vueling, said it expected capacity this year to be about 97% of 2019 levels, with BA slightly lower because of the slow return of some Asian routes, particularly China. That means its operating profit for the full year will probably be higher than the €2.3bn it had previously predicted.
Shares rose 4.5% on Friday morning, making IAG the top riser on the FTSE 100.
The group returned to full-year profit in 2022 after racking up losses of almost €11bn through 2020 and 2021.
On Friday, it cautioned that it still faced uncertainties over the coming year. Fuel prices in particular could be affected by “ongoing volatility in the geopolitical and macroeconomic environment”, after a year when energy markets have been roiled by Russia’s invasion of Ukraine. Economists are also watching the world’s largest economies closely for signs of recessions as the Federal Reserve and other central banks raise interest rates to try to bring down inflation.
IAG said it had “limited visibility of customer bookings for the second half of the year”, when it will be hoping to avoid a repeat of the chaos of the summer of 2022, when airlines were forced to limit traffic as the UK’s largest airport strained with high passenger numbers.
A bigger concern at the the moment is the potential impact of French air traffic control strikes, according to Luis Gallego, IAG’s chief executive, but he said BA was taking a “package of actions” at Heathrow and with ATC services to ensure punctuality.
BA’s chief executive, Sean Doyle, said the carrier had recruited 10,000 additional staff since last year. He said that BA was “operating as normal” at Heathrow despite strikes by security staff at the airport. Unite members were on their second of three days of strikes this week on Friday, with a further five days planned this month.
Gallego said: “IAG has delivered a strong first-quarter financial performance, as group airlines recovered capacity to close to pre-pandemic levels. Iberia contributed a record first-quarter profit and all our airlines performed above expectations, benefiting from robust demand and a lower fuel price in the quarter.
“We are seeing healthy forward bookings, with leisure demand particularly strong, while business travel continues to recover more slowly.”
Fares are significantly higher on many routes. Gallego defended the fares, saying: “Inflation is very high, and costs are rising – labour and supplier costs are rising. Airlines operate a dynamic model, fluctuating with demand, so it’s in our interest to offer competitive prices.”
Doyle added: “Fuel is also higher than in 2019. But we have capacity coming back in the core market, so we can give customers more choice than last year. We want to be competitive on fares but the economics means there are costs we need to recover.”
Gallego said there were marked differences within the group in the return of corporate travel, with Iberia’s business custom now back to 95% of 2019 levels compared with only 65% at BA. Gallego said the trend was “slower than we thought but it’s coming back”, ascribing the bounceback in Spain to a swifter return to the office than in the UK.
Capacity in the Asian market is another factor, with BA only recently restoring some routes, including Beijing and Shanghai, after the pandemic. Doyle said they were “performing well” but the airline would not be operating at 2019 levels this year.