International Consolidated Airlines Group SA (LSE:IAG), the owner of British Airways, Iberia, Aer Lingus and Vueling, clawed back the majority of early losses to trade down less than 2% at 388.6p as investors digested a first-quarter beat clouded by a full-year profit warning driven by rising fuel costs.
Panmure Liberum retained its 'buy' rating and 590p target price on the stock, implying upside of around 52% from current levels, after results came in well ahead of its estimates with limited impact from the Middle East conflict in the period.
The broker flagged revenues as the standout positive, with passenger revenue per available seat kilometre, a key airline efficiency measure, rising 3.5% year-on-year and 8.2% on a constant currency basis, comfortably ahead of expectations.
Operating profit reached €351 million, a 77% increase on the same period last year and a 4.9% margin, against Panmure Liberum's own estimate of €98 million.
Profit and margin improvements were recorded across all operating units with the exception of Aer Lingus, which continued to face pressure from competition on North Atlantic routes.
The picture darkens looking ahead. Full-year profit will fall short of original guidance as higher fuel costs bite, despite the group being 70% hedged for the remainder of the year.
Annual capacity growth has been trimmed to roughly 2% below previous guidance, with second-quarter capacity expected to grow 1% and third-quarter capacity 2%, while plans for the winter season remain under review.
Only 3% of IAG's network was exposed to the Gulf region before the conflict, and most of that has already been redeployed to alternative routes or used to cover maintenance and supply chain gaps.
Demand remains robust, particularly in premium cabins and on transatlantic routes, and management expects to recover around 60% of the additional fuel burden through pricing and cost actions.
IAG added that it continues to see no issues with jet fuel availability and remains on track with its shareholder returns programme.