British Airways Owner IAG Rises as Higher Fares Offset Fuel

(Bloomberg) -- IAG SA’s third quarter results are in and they’re very much in line with expectations -- a piece of good news for Europe’s aviation industry that’s battling soaring fuel prices.

  • Operating profit before exceptional items, the key measure for IAG, came in at 1.45 billion euros ($1.6 billion), slightly higher than the 1.39 billion euro-estimate. Full-year earnings will be about 3.15 billion euros -- bang in line with the 3.16 billion euros analysts are expecting (as long as fuel and exchange rates don’t change drastically).

Key Insights

  • Echoing some of the positivity across the Atlantic, IAG is seeing stronger ticket prices, helping to offset some of the pain from higher fuel costs.
  • About those fuel costs: they’re up 13.5 percent in the first nine months of the year, about 500 million euros more than previously. It’s a lot, but between higher fares and an improvement in non-fuel costs, IAG’s managing to shield itself from the worst.
  • Whereas IAG is quite comfortably hedged on fuel, other carriers aren’t and Willie Walsh, IAG’s chief executive officer, told reporters to expect more bankruptcies before the end of the year.
  • The owner of British Airways and Iberia also booked compensation from enginemakers (cue the months of pain that IAG has battled with disruption to its Rolls-Royce Holdings Plc-powered 787s and the late deliveries of its Pratt & Whitney A320neos). Still, Walsh is not happy and he made that clear to reporters.

Market Reaction
  • IAG shares rose 2 percent to 599 pence as of 8:18 a.m. in London, paring the stock’s decline this year to 8 percent for a total market value of 11.9 billion pounds ($15.3 billion).

Get More

  • IAG Third Quarter Adjusted Operating Profit Beats Estimates

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