IAG, Air France upbeat as travel rises
Sector flies at cruising altitude on pent-up demand after emerging from Covid
B ritish
Airways owner IAG and Air France-KLM remain upbeat as the post-pandemic travel boom continues, but the Franco-Dutch group’s plunge to an unexpected loss at the end of 2023 highlights the challenges from high costs and conflicts.
European airlines are reporting strong summer bookings as consumers continue to prioritise travel, but high jet fuel prices, geopolitical uncertainty and wage talks are clouding prospects.
Case in point: Air France-KLM swung to a loss in the last quarter of 2023, hit by higher costs and disruptions caused by conflict in the Middle East, sending its shares down 10% in early trade.
IAG, however, saw its shares rise following strong 2023 results and reassuring comments over capacity for 2024, amid fierce competition for new planes and problems at manufacturers.
IAG CEO Luis Gallego said the Middle East conflict had impacted mostly corporate demand in the last quarter of 2023 and the first quarter of 2024, but that was expected to recover.
Unlike other airlines, IAG, which also owns Iberia, said it was not concerned over capacity for the year to come and was not expecting delays in Boeing deliveries this year.
Gallego said that if the certification of Boeing’s 737 MAX 10 was slowed, IAG could convert to other variants. Boeing is grappling with quality issues and a regulatory crackdown following the blowout of a door panel from a new Alaska Airlines MAX 9 during a flight on Jan 5.
“For the time being we aren’t worried. We are sure they’ll fix the situation,” Gallego told a press call.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, welcomed IAG’s drive to improve efficiency by reducing disruptions.
“These are all great targets, but the pace of delivery is far from guaranteed. It’s crucial that BA gets this right,” she added. Both IAG and Air France-KLM said bad weather had impacted costs.
In another example of possible clouds on the horizon, despite strong demand, analysts and investors have told Reuters that Lufthansa would likely miss its 2024 profit margin goal as the German airline seeks to agree new, higher pay deals to end prolonged strikes.
UNEXPECTED Q4 LOSS
Air France-KLM reported record revenues for 2023 and an operating profit of €1.7 billion ($1.8 billion), in line with expectations.
However, its fourth-quarter operating loss of €56 million was far short of analysts’ consensus forecast for a profit of €88 million, according to a company poll.
Still, Air France-KLM was able to pay down €1.3 billion in debt, much of which was amassed during the pandemic travel shutdown, leaving outstanding net debt at €5 billion.
“We can be satisfied of our efforts to further strengthen our balance sheet and restore the Group’s equity,” Chief Executive Ben Smith said.
The group said it expected that costs will not go up as quickly as they did in 2023 and that its capacity this summer would be close to 2019 levels.
Finance chief Steven Zaat said there was strong demand. “The problem is not selling the tickets. We can sell every seat we want,” he said, adding the issue was having enough capacity.
Bernstein analysts stressed that Air France-KLM’s fourth quarter loss was impacted by one-off effects of disruption costs and the implementation of an employee shareholding plan.
“Importantly, real-terms cost reduction looks set to continue, supporting margin expansion ahead,” they added.
Meanwhile, El Al Israel Airlines said its fourth-quarter profit was boosted in part by bringing military reservists home and rivals cancelling flights to Tel Aviv due to the war in Gaza.
However, the war against Palestinian militant group Hamas, “continues to have a dramatic impact on the Israeli economy, on the activities of the aviation sector and ... on El Al,” the airline said.