Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- International Consolidated Airlines Group SA (BABWF, Financial) reported a strong performance in the first half of 2024 with a profit of over EUR1.3 billion, an increase of EUR49 million compared to the previous year.
- The company saw strong demand for travel in core markets such as North America, Latin America, and Intra Europe, resulting in a positive unit revenue growth of 2.9%.
- British Airways delivered a strong revenue performance with an operating profit improvement of GBP59 million and an increase in operating margin to 8.2%.
- IAG Loyalty showed a good performance with an operating result of GBP193 million, up GBP23 million year on year, and a margin of 18%.
- The company's balance sheet continues to strengthen, with a reduction in net debt to EUR6.4 billion and an improvement in leverage to 1.1 times.
Negative Points
- Aer Lingus faced challenges in the first half with a profit of only EUR9 million, impacted by competitive pressure from US carriers and industrial action by its pilots.
- Iberia's third-party business had lower results than the previous year, reflecting the loss of eight operating licenses by Iberia handling.
- The decision to withdraw from the Air Europa acquisition process resulted in a provision of an exceptional charge of EUR50 million corresponding to the breakup fee.
- Asia Pacific market showed weak demand, particularly in China, leading to a decrease in unit revenue by 14%.
- The company's total non-fuel CASK increased by 1.8% in the first half of the year, driven by the timing of last year's wage agreements and investments in operations and fleet.
Q & A Highlights
Q: What led to the decision to end the Air Europa deal, especially when the Commission concluded that indirect connections provided adequate competition?
A: We worked closely with the Commission and proposed a generous remedy package, but it wasn't enough to address competition concerns. Therefore, we decided that continuing with the deal wouldn't generate value for the group. (Luis Gallego Martin, CEO)
Q: What are the criteria for returning excess cash to shareholders versus pursuing inorganic growth opportunities?
A: We prioritize maintaining a strong balance sheet, keeping leverage below 1.8 times, and assessing the outlook and alternative uses for cash. We started paying a dividend and will continue to review our position for the rest of the year. (Nicholas Cadbury, CFO)
Q: How does IAG view the current pricing environment and on-book load factors for Q3?
A: Bookings for Q3 are at 81% of our expectations, in line with our forecast. We see strong demand in our main markets, although there is some weakness in China and Asia. (Luis Gallego Martin, CEO)
Q: Why has the CapEx guidance for the next few years been reduced, and does this impact your medium-term targets?
A: The reduction is due to the removal of ETS from CapEx and some aircraft delivery delays. We don't expect this to impact our targets as the industry is experiencing similar delays. (Nicholas Cadbury, CFO)
Q: What factors contributed to IAG outperforming the sector in terms of yield growth?
A: Our strong geographies, customer base, and transformation initiatives have driven performance. British Airways' improved operational performance and reduced cancellations also contributed. (Luis Gallego Martin, CEO; Nicholas Cadbury, CFO)
Q: How is the corporate travel recovery progressing across IAG's airlines?
A: Business travel is recovering at different rates: BA is at 65% volume and 80% revenue of 2019 levels, Iberia is at 90% volume and above 2019 revenue, and Aer Lingus is close to 100% volume and 95% revenue. (Luis Gallego Martin, CEO; Sean Doyle, CEO of British Airways)
Q: What are the network growth plans for IAG's brands over the next few years?
A: We are restoring and expanding capacity across all markets, with specific growth in Asia, North America, and Latin America. Iberia will use new XLR aircraft to reach new destinations. (Luis Gallego Martin, CEO; Sean Doyle, CEO of British Airways; Marco Sansavini, CEO of Iberia)
Q: What is IAG's approach to maintaining liquidity and leverage targets?
A: We aim to keep cash at 20-25% of revenue, with current levels above that. We have no significant non-aircraft debt repayments this year but have some in 2025 and 2026. (Nicholas Cadbury, CFO)
Q: How does IAG plan to handle the competitive capacity environment, especially in the North Atlantic market?
A: We are investing in fleet, products, and IT to improve competitiveness. Currently, North Atlantic capacity is flat, and US airlines are focusing growth elsewhere due to higher costs. (Nicholas Cadbury, CFO)
Q: What is the outlook for IAG's loyalty business and its growth potential?
A: The loyalty business is growing double digits in revenue and collections, and we expect this growth to continue for the next few years. (Adam Daniels, CEO of IAG Loyalty)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
