IAG enjoys profit surge but warns of problems ahead

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  • Anonymous
    Guest

    Carajillo2Sugar
    Participant

    Courtesy of the TTG (Travel Trade Gazette)

    British Airways-owner International Airlines Group has swung into profit in the traditionally weaker first three months of the year but warned that future revenue is likely to take a hit as a result of the Brussels terrorist attacks.

    In the same period last year IAG made a loss of €37 million but twelve months later this was turned into a profit of €124 million.

    Total revenue rose 7.9% to €5 billion.

    IAG’s impressive turnaround was only tempered by a warning of turbulence in the second quarter. It said that as well as the fallout from the Brussels attacks there was also some “softness in underlying premium demand”.

    Despite this IAG still said it would generate an operating profit similar to 2015’s figure of €2.3 billion.

    Willie Walsh, IAG chief executive, said: “This is a good performance with a strong increase in what is traditionally the weakest quarter.

    “January and February’s revenue was in line with Q4 2015 trends. March revenue was affected by the timing of Easter and the Brussels terrorist attacks with the latter continuing into quarter two.”
    ======================================================================

    Penny-pinching would appear to be working (for shareholders, at least!)


    MrMichael
    Participant

    Look after the penny’s, the pounds look after themselves.

    Interesting that they describe “softness in premium demand”. I wonder if this an IAG issue given the pasting club world takes on here from time to time or if it is a global issue. I have noted that EK is reducing the premium offering on their latest A380,s.


    Carajillo2Sugar
    Participant

    I’m not sure that “softness in premium demand” is the real reason for this warning about the 2nd quarter. Rather, it’s down to yield.

    For example, Virgin / Delta / United have some very good business class fares on their North Atlantic routes. BA and American Airlines, who have a joint venture on these same Atlantic routes, have realised they have a battle on their hands to keep a grip on their market share. Because of this, we are seeing some very good deals from them, too.

    Regular flexible/refundable Business Class fare LON-NYC-LON = c£7k inc.taxes

    The current BA/AA market offering can see this as low as c£3k inc.taxes

    That’s quite a difference!


    AnthonyDunn
    Participant

    Just how much impact has there been of the not infrequent industrial inaction at competing carriers across continental Europe?


    AllOverTheGaff
    Participant

    MrMichael – 29/04/2016 13:08 BST
    Interesting that they describe “softness in premium demand”. I wonder if this an IAG issue given the pasting club world takes on here from time to time or if it is a global issue.

    Not that I have any insider knowledge, but given almost all airlines now offer a far better product in J, and that the service aboard their competitors flights can be a lot better, and of course, the proliferation of other long-haul airlines at what London would call “regional” UK airports, I’m not surprised IAG class their business class as “soft demand”.

    A good example would be to use Scotland. Should I wish to go East, I can now use:

    Emirates twice a day
    Etihad daily
    Turkish twice a day
    *Edited to add Qatar daily
    Or I can connect with:
    Lufthansa
    Air France
    KLM
    Norwegian

    And going over the Pond, it actually surprised me the other day to find I have THREE direct options to New York:
    1) United
    2) Delta
    3) AA

    For Europe I have Jet2, EZY, O’Leary and Monarch.

    From GLA during the summer I can go VS to MCO, and the charter mob to Mexico etc.

    Not all of the above are perfect of course, not for one moment suggesting they are, but certainly for New York (albeit on a tired 757) I can do a daytime over and a night-time back for less than £1.7K in business. No faffing at LHR, and a ‘reasonable’ lie flat product. Nope, it isn’t as comfy as a CW seat, but it is at worst 3 – 4 hours faster. I’d give up an inch or two shoulder space to get home much faster and avoid LHR.

    I suspect this is mirrored at Manchester, Brum to an extent Newcastle, Liverpool, Leeds Bradford and all the other airports BA doesn’t fly from.

    Great results financially though, almost makes you wonder how crap they have to be to lose money – which I believe is their new mission statement.

    😉
    Rgds.
    AOTG.


    SimonS1
    Participant

    Good results really. BA has found its niche in the market with the right proposition at the right price. It will never compete with the 5* operators but it is clearly delivering for shareholders which is the goal.

    I would imagine further efficiencies will be delivered from the Aer Lingus integration, and there are always savings to be made in the core business. For example there is increasing speculation that BA might crack down on ensuring people do the last legs of ex-EU and so on. With oil prices remaining depressed, the outlook seems positive.


    JohnHarper
    Participant

    So, Walsh is obviously to be congratulated.

    Revenue was strong in a quarter when oil prices were at their lowest for many years and the ‘carrier imposed surcharge’ remained in place and Easter came early too. Of course those two factors played no part in the amazing results.

    I’m so impressed I’m speechless.


    Jackanory
    Participant

    The ‘softness in premium demand’ is partially due to a large number of financial institutions implementing travel bans or very restrictive travel policies (requiring multiple sign-offs) in Q1.


    christopheL
    Participant

    @SimonS1
    “It will never compete with the 5* operators but it is clearly delivering for shareholders which is the goal”

    “To fly to serve” or “flying for sharholders” that is the question.


    BigDog.
    Participant

    From a share perspective, IAG has underperformed both AF and LHA over the past year, which some may view as surprising given LHA industrial problems.

    However it maybe viewed that both AF and LHA have greater opportunities to squeeze more saving whereas IAG has taken most if not all the cost reduction it can.


    FDOS_UK
    Participant

    Although it is trotted out on here, quite regularly as being good, I don’t believe that a strategy that involves being ‘middle of the road’, works under many circumstances – it’s against the natural laws of the market, where differentiated products carry a premium and low cost bases allow aggressive pricing to win volume.

    In this instance, of high significance are the obstacles created by limited capacity at Heathrow and this allows BA a dominant position (as acknowledged by the EC a fedw years ago.)

    a quick review of BA since 2000 will show a retreat from competing with the locos (despite having started Go and BACON), resulting in little regional activity (and all that remains is via London) added to the ceding of huge amounts of passengers from the regions to international destinations.

    BA is no longer the largest UK carrier (by pax carried) and Emirates, in particular, rules the roost from everyhere outside fortress Heathrow, where even now the airline has just added another (is it the 8th?) rotation – those passengers are not all O&D by any means and this is a huge amount of traffic that BA doesn’t even seem to compete for.

    Whilst the situation at Heathrow (and good economic conditions) continue, the money making machine will prosper, providing camouflage for a lack of ambition that is manifested by ‘average Joe’ products that are just about good enough. With the honourable exception of World Traveller Plus, 2010, which is a winner – even then, BA still has a lot of 2001 era WTP that it doesn’t intend to update – another sign of lack of ambition to be world class.

    Yes, it is working currently, with low oil prices and AF and LH In disarray, but we will see what happens in the future.


    FDOS_UK
    Participant

    BigDog. – 29/04/2016 16:58 BST

    Agreed – where do you go, when you have taken all the fat off the bone?


    BigDog.
    Participant

    Exactly DOS – looking at the figures the increased revenue has come from expense reduction and not increasing revenues (from business growth).

    edit…Mr Michael is correct – I miswrote
    – increased PROFIT has come from expense reduction (especially fuel down 23%) and not increasing revenues (from business growth).

    …. Passenger unit revenue for the (equivalent) quarter down 3.5 per cent and at constant currency down 4.7 per cent ….


    MrMichael
    Participant

    Sorry, I cannot figure how you get increased revenue from cost reduction, surely you get better margins?

    Christophel, be in absolutely no doubt, BA flies for the shareholders, as does virtually every airline on earth. Promotional marketing gumph such as “To a Fly To Serve” is just that…..gumph. Every company spouts gumph in the hope potential and existing customers will connect with it. One could argue……every airline on earth

    flies to serve
    to
    get revenue
    to
    get a margin
    to
    make a profit
    to
    pay shareholders.

    Only the first is for the marketing bods, the rest is for the institutional shareholders and will not be promoted to customers.

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