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IAG swings to profit with ‘strong recovery’ across all airlines

International Consolidated Airlines Group (IAG) has reported its first profitable quarter since the start of the pandemic, generating €293 million in profit in the second quarter of 2022.

During an earnings call on Friday the UK-based airline group, which owns British Airways, Iberia, Aer Lingus and Vueling, reported profits across all its airline brands for the quarter.

Overall capacity had recovered to 78 per cent of 2019 levels, up from 65 per cent in the first quarter, while overall revenue recovered to 88 per cent of 2019 levels – close to five times higher than 2021. Passenger load factor came in at 81.8 per cent, 3.2 points lower than 2019, but higher than Q1 (72.2 per cent).

The group reported a “strong cash position” largely driven by forward bookings, which have recovered to 90 per cent of 2019 levels by volume and 95 per cent by revenue. Demand was strongest on the key domestic routes in Europe (89 per cent of 2019 levels), North America (84 per cent) and Latin America & Caribbean (81 per cent).

Premium leisure revenue continues to be strong and has almost fully recovered to 2019 levels, while business booking volumes have recovered to 60 per cent of 2019 levels and in 70 per cent in terms of revenue.

IAG CEO, Luis Gallego, said the group is seeing “steady improvement” of corporate bookings, largely driven by SMEs and sectors such as oil and gas, media and banking. Pharma, he said, is the least recovered.

Despite recent operational challenges, inflationary risks and “limited visibility into Q4 bookings”, Gallego said he expects to maintain profitability throughout the second half of the year.

“Although bookings into the fourth quarter are seasonally low at this time of year, we are seeing no signs of any weakness in demand,” he said.

However, the group reduced its overall 2022 capacity outlook to 78 per cent of 2019 levels (down from 80 per cent), largely due to restrictions imposed at Heathrow Airport.

Gallego didn’t shy away from addressing the challenges British Airways has experienced in recent months – related to capacity restrictions and pay disputes with staff. He said the group is working with “an ecosystem of actors” at the airport to provide “operational resilience” and that it has a “transformation plan” to better manage labor costs.

“Our industry continues to face historic challenges due to the unprecedented scaling up in operations… Our airline teams remain focused on enhancing operational resilience and improving customer experience,” he said.

Gallego also thanked employees for their “hard work and commitment” and said talent is being managed at “group level”, which includes “talent mapping” and “a refreshed approach to performance management”.

The group’s liquidity at the end of June was reportedly at its highest level since the pandemic, coming in at €13.5 billion, while EBITDA (earnings before interest, taxes, depreciation, and amortization) was €797 million.

Zeroing in on airline performance, Iberia and Vueling were the best performing carriers within the group. Gallego said the Spanish domestic market and routes to Latin America continued to lead the recovery with demand exceeding 2019 levels in June.

Iberia recorded passenger revenue at 96 per cent of pre-pandemic levels, while Vueling exceeded 2019 passenger revenue by 5 per cent.

Aer Lingus experienced a slower recovery due to Ireland’s delayed border reopening. Passenger revenue recovered to 77 per cent, while capacity and load factor recovered to 86 per cent and 78 per cent, respectively.

British Airways performed well despite challenges at Heathrow. The carrier saw passenger revenue return to 73 per cent of 2019 levels, with leisure demand outpacing capacity.

IAG chief financial officer Nicolas Cadbury said business revenue for the airline gradually improved to 60 per cent recovery across the quarter and, while volume remains low, business channel yields were above Q2 2019 levels.

Flight cancellations and Heathrow’s capacity cap reportedly had a limited impact on the group’s operations. Unsurprisingly, British Airways was the hardest hit with an average 2.9 per cent of flights canceled (within 48 hours of scheduled departure) between April and June.

Planned schedule adjustments from May to October will see approximately 18 per cent of British Airways flights cancelled.

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