Shares in International Consolidated Airlines hovered higher in Thursday business at the company posted record profits for last year.
At 154.15p per share, IAG’s share price was last 0.9% higher on the day.
Revenues at the British Airways owner leapt 27.7% year on year in 2023, to €29.5 billion, which the the firm said reflected “strong and sustained demand for travel” Demand was especially strong in the leisure segment, it commented.
This meant operating profit (excluding exceptional items) rocketed to €3.5 billion from €1.3 billion in 2022.
No Dividend Yet
Capacity at the FTSE 100 company rose 22.6% last year from 2022 levels in response to strong passenger demand. This stood as 95.7% of 2019 levels for the whole year, and reached 98.6% of pre-pandemic levels in the final quarter.
Operating margins, meanwhile, more than doubled to 11.9% in 2023 from 5.4% a year earlier as transformation efforts continued.
Free cash flow generation rose by more than a third year on year to €1.3 billion. This in turn reduced IAG’s net debt to EBITDA ratio (before exceptionals) to 1.7 times from 3.1 times in 2022.
However, this was not enough to prompt a resinstatement of dividends from the long-haul specialist.
IAG said the ongoing absence of shareholder payouts reflects undrawn committed credit facilities at British Airways, as well an agreement related to the New Airways Pension Scheme (NAPS).
Building Value
Chief executive Luis Gallego commented that “IAG more than doubled its operating margin and profits compared to 2022, generated excellent free cash flow and strengthened its balance sheet position, recovering capacity to close to pre-COVID-19 levels in most of its core markets.”
Gallego added that the company will continue “building long-term value into the business” during 2024. He said that “we will focus on strengthening our core airline businesses and on developing IAG Loyalty and our other asset-light growth opportunities, and we will do this while operating under a strong financial and sustainability framework.”
IAG said that traveller demand has remained “robust” so far in 2024. It is 92% booked for the first quarter, and 62% booked for the first half, it noted. Both readings are ahead of those recorded at the same point last year.
“Robust Course”
Analyst Sophie Lund-Yates of Hargreaves Lansdown comments that “British Airways is charting a robust course as it rides the tailwinds of strong leisure demand. Consumers are continuing to prioritise travel, and that’s translating to longer-haul trips.”
She notes that IAG “has put a lot of work into honing its routes” and especially in its North and South Atlantic markets. It has also seen a healthy uptick in IAG Loyalty members which Lund-Yates says will provide “a potential boost further down the line.”
Mark Crouch, analyst at eToro, comments that “shareholders will be keen to see these strong numbers reflected in a rising share price.” He notes that “IAG is trading 70% lower than pre pandemic levels, a damning indicator of just how much confidence was lost in the company following the Covid crisis, and one that continues to be viewed with scepticism by investors.”
Crouch adds that “a reintroduction of the dividend would go some way to inticing new investors, while also signalling management’s confidence that the turmoil of the pandemic is well and truly behind them.”