ii view: Easter gives IAG a lift

Airline operator IAG underlines its diverse brand portfolio as it benefits from Easter timing.

First-half results to 30 June 2019 

• Revenue up 7.9% to €12.1 billion
• Adjusted profit down 11.7% to €1.09 billion
• Net debt down 25.7% to €4.8 billion
• No dividend payment, unchanged from H1 2018

Chief executive Willie Walsh said:

"Despite fuel cost headwinds, we delivered a good performance. At constant currency, fuel unit costs were up 6.3 per cent while passenger unit revenue increased 1.1 per cent, benefitting from the timing of Easter. This highlights, once again, that our unique structure and diverse brand portfolio underpins our financial resilience and ability to deliver robust results".

ii round-up:

International Airlines Group International Consolidated Airlines Group SA (LSE:IAG) is one of the world's largest airline groups.

It operates over 570 aircraft flying to over 260 destinations and carrying around 113 million passengers each year. It is a Spanish registered company with shares traded on the London and Spanish Stock Exchanges.

Its brands include British Airways and Iberia which it categorises as full service, Aer Lingus and Iberia Express which it categorises as value offerings and Level and vueling which management marks as low-cost. 

The airline’s pilots recently announced an intention to strike in a dispute regarding pay.  

The company’s half-year results were broadly well received. Profit materialised ahead of forecast. Fuel unit costs rose by 6.3% while passenger unit revenue increased 1.1%, benefitting from the timing of Easter. Accompanying outlook comments also proved positive in tone. 

The share price rose by over 2% in mid-morning UK stock market trading.

ii view:

IAG has transformed itself from the UK’s national airline to a multi-branded operator. A low-cost business model has been adopted for two of its brands, while cost reduction now features across the industry thanks to the success of the low-cost operators. 

For income investors, a prospective yield of over 6% (not guaranteed) and covered over three times by earnings provides appeal. A forward price earnings ratio below the three-year average potentially adds further weight, although the highly cyclical nature of the airline business should not be forgotten. 

Positives: 

• Strong and diverse brands
• Growing capacity – up by 5.7% in the period
• New fleet adds are driving efficiencies

Negatives:

• Company is subject to a record data breach fine
• Pilot strike action overhangs
• Events outside of management control can impact

The average rating of stock market analysts:

Buy