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IAG: British Airways' parent company reports strong financial performance for 2017

BA’s performance hampered by power outage in May 2017

Simon Calder
Travel Correspondent
Friday 23 February 2018 12:17 GMT
Flying high: a British Airways Airbus A380 near Heathrow
Flying high: a British Airways Airbus A380 near Heathrow (British Airways)

IAG, the parent company of British Airways, has reported “a very good full year performance” – with even better results predicted for 2018 at current fuel prices and exchange rates.

The airline group, which also includes Aer Lingus, Iberia, Level and Vueling, has reported an operating profit of €3,015m (£2,655m) before exceptional items for 2017. The figure is 18.9 per cent higher than 2017.

Willie Walsh, the chief executive, said: “All our airlines performed extremely well with their best-ever individual financial results, strong operational performances and commitment to customer service.”

He said the turnaround at the Spanish low-cost subsidiary, Vueling, which had a torrid 2016, had been “particularly outstanding”.

Revenue rose 1.8 per cent across the group, though it fell 1 per cent relative to available seat kilometres. The “seat factor” – the proportion of capacity filled – increased by 1 per cent to 82.6 per cent, ahead of the IATA worldwide average.

Costs at British Airways increased, due to more expensive “pay-as-you-go” engine contracts, higher maintenance costs because of additional flying, and compensation arising from the power outage in May 2017 which wrecked the travel plans of hundreds of thousands of BA passengers over a bank-holiday weekend.

British Airways is expanding aggressively at Gatwick, having acquired the slots previously used by Monarch at the Sussex airport. It is believed to have paid more than £50m for the take-off and landing rights, which will increase the number of flights by 28 per cent.

Alex Cruz, chief executive and chairman of BA, said the new slots would be used for European flights in 2018: “The focus this year is short haul. You’ll see increase in frequency to well-known destinations.

“In terms of ambition, there are opportunities to grow our very, very successful long-haul network from Gatwick.”

In a webcast, Mr Walsh repeated his opposition to any increase in charges at Heathrow to pay for a third runway, saying: “We think the airport can be expanded without any increase in passenger charges.

“Heathrow has said ‘We can do this for £14bn’. We think that is excessive.”

On Thursday, Heathrow’s chief executive, John Holland-Kaye, said: “For Britain to thrive post-Brexit, the Government needs to crack on with Heathrow expansion as quickly as possible with a vote in Parliament before the summer.”

The largest part of the IAG network is represented by North America, at almost 30 per cent. Transatlantic capacity was increased with new flights from Aer Lingus, British Airways and Level, which launched from Barcelona in June 2017.

Next month a new Level route from Barcelona to Boston will begin, replacing Punta Cana, with a new base at Paris Orly offering services to Montreal, New York and the French Caribbean islands of Guadaloupe and Martinique.

Mr Walsh said: “Level has exceeded our expectations. It gives us significant advantages over our competitors.

“Our plan in the short term is getting to about 15 aircraft.”

IAG has recommended a dividend of €0.145 per share, bringing the full-year dividend to €0.27. “With the dividend and share buyback, we returned more than €1bn [£880m] to our shareholders last year,” said Mr Walsh.

“Our confidence in IAG’s future remains undaunted and today we’re announcing our intention to undertake a share buyback of €500m [£440m] during 2018.”

George Salmon, equity analyst at Hargreaves Lansdown, said: “Cheap fuel and stronger economic growth have helped IAG fly with tailwinds over 2017.

“However, neither of these factors are under IAG’s control, so to some extent, the group’s recent success has been a function of being in the right place at the right time.

“What investors will really crave is underlying improvements, not shots in the arm from favourable external factors.”

The euro and sterling have strengthened against the US dollar by more than 10 per cent over the past year, making fuel and aircraft leases priced in dollars cheaper.

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