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British Airways and Iberia Owner IAG Bullish on Transatlantic Outlook

Edward Russell

October 27th, 2023

British Airways 787 Landing LAX

The owner of British Airways and Iberia, International Airlines Group, is confident in the full, profitable recovery of its airlines next year as longhaul travel demand — particularly across the Atlantic — remains robust.

Leisure travel demand is robust and corporate demand, which has returned more slowly from the pandemic, continues to come back faster in longhaul markets than shorthaul ones in Europe, IAG CEO Luis Gallego said during the group’s third-quarter earnings call Friday. He highlighted strength in premium demand, particularly premium leisure travel, across the Atlantic as a particular bright spot.

Leading the longhaul recovery are North and South America where both capacity and passenger unit revenues were up in the third quarter. Asia and Africa saw small declines in passenger unit revenues but on higher capacity growth as both regions had recovered less than the Americas. Systemwide, passenger unit revenue at IAG increased 2.2% year-over-year on a nearly 18% increase in capacity.

That performance, as well as continued strong demand within Europe, generated strong results for IAG. The group reported a €1.7 billion ($1.8 billion) operating profit and 20.2% operating margin in the September quarter. Every airline in the group — Aer Lingus, British Airways, Iberia, and Vueling — was firmly in the black. Revenue at IAG increased 18% year-over-year to €8.6 billion.

“This has been a very good quarter,” Gallego said.

While executives did not provide financial guidance for 2024, they did say IAG plans to fly just over 2019 capacity levels. Capacity this year is forecast at roughly 96% of four years ago. And, while Gallego said the group is “mindful” of the Middle Eastern conflict and whether that becomes a larger global issue, he and other executives were confident in their plans and likely profitable next year. This included dismissing analyst questions over the entrance of JetBlue Airways to Dublin — a hub for Aer Lingus — with flights from Boston and New York next summer, and the planned increases in industry-wide transatlantic capacity next year.

Aer Lingus will add Denver and Minneapolis-St. Paul to its transatlantic map next summer. Neither British Airways nor Iberia have unveiled their summer 2024 plans yet.

Airline seats to Europe and the U.S. and Canada are scheduled to increase 5% in the fourth quarter compared to 2019, according to Cirium Diio schedule data. Seats will be up 1.5% to London but down just over 1% to Spain.

Gallego also downplayed the impact on IAG from issues with certain Pratt & Whitney geared turbofan engines on Airbus A320neo-family aircraft. The group has grounded 32 aircraft at Iberia and Vueling as a result, he said, but added that with a fleet of more than 300 A320-family planes, the impact will be offset. Vueling, where most of the affected aircraft are, has no plans to cut capacity.

The status of IAG’s planned €400 million acquisition of Air Europa remains a hot topic. The group continues to supply European Commission antitrust regulators with information related to the deal, as well as engage with partners on potential competitive remedies, Gallego said. The questions of what those remedies could be given Madrid’s Barajas airport — where Air Europa and Iberia both have hubs — is not slot constrained did not come up.

IAG aims to close the Air Europa deal in a year, or by the fourth quarter of next year.

“I hope that the approach is going to be to help the consolidation in the market in order to help the airlines in Europe be sustainable,” Gallego said in response to questions over a potential tightening of airline merger rules in Europe. He added that IAG needs scale to compete globally, and meet the carbon emission reduction and sustainable fuel targets set out by the European Union.

IAG has long argued that it needs Air Europa to expand Madrid into a “360-degree” hub to compete with the likes of Amsterdam, Frankfurt, and Paris.

Airlines Sector Stock Index Performance Year-to-Date

What am I looking at? The performance of cruise and tours sector stocks within the ST200. The index includes companies publicly traded across global markets including network carriers, low-cost carriers, and other related companies.

The Skift Travel 200 (ST200) combines the financial performance of nearly 200 travel companies worth more than a trillion dollars into a single number. See more airlines sector financial performance

Read the full methodology behind the Skift Travel 200.

Edward Russell

October 27th, 2023

Tags: Europe

Photo credit: British Airways 787 Landing LAX Flickr / Daniel Gillaspia

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