British Airways owner International Consolidated Airlines Group PLC (LON:IAG) declared a €700mln special dividend as it delivered a 9.5% rise in 2018 profit despite higher fuel costs and foreign exchange headwinds.
The group, which also owns the Aer Lingus, Iberia and Vueling airlines, said operating profit before exceptional items increased to €3.23bn in the year to December 31 from €2.95bn in 2017 as the operating margin improved 0.2 points to 14.4%.
READ: British Airways parent IAG sees annual profits €200mln up on last year
“This was a very good performance despite three significant challenges: fuel prices increasing 30%, considerable air traffic control disruption and an adverse foreign exchange impact of €129mln, said chief executive Willie Walsh.
Fuel unit costs for the year were up 8.0% while non-fuel unit costs dropped 2.2%.
Revenues rise as passenger numbers grow
Total revenue grew 6.7% to €24.4bn with passenger revenue up 6.2% to €21.4bn. IAG carried 112.9mln passengers last year compared to 104,829 in 2017 as the company increased capacity by 6.1%.
The load factor, which measures the number of passengers against the number of seats available, gained 0.7 points to 83.3%.
The company said it would return more than €1.3bn to shareholders with ordinary dividends of 4615mln and a special dividend of €700mln, some €260mln higher than the previous year’s payout.
IAG ended 2019 with cash of €6.3bn, down €402mln on 2017, while adjusted net debt increased 7.7% to €8.4bn.
2019 profits to be flat
For 2019, the group expects flat operating profit before exceptional items, based on current fuel prices and exchange rates. Passenger unit revenue is expected to improve at constant currency and non-fuel unit cost is expected to be flat at constant currency.
"A flat outlook for 2019E is broadly consistent with current consensus, although this might be viewed as uninspiring after a year of strong growth in 2018, despite fuel headwinds," said Liberum, which maintained a 'buy' rating and target price of 875p.
Liberum added that 2018 results were in line with its forecasts. However, the special dividend was "somewhat unexpected", the broker said.
"There had been some suggestions that the group had sufficient balance sheet headroom to return more cash to shareholders, but we are surprised the group is happy to part with an extra c.€700m of cash in such an uncertain environment," it said.
"That said, the group has been building a record of returning extra cash to shareholders, with share buybacks now more challenging given the need to manage the national ownership issue."
In mid-morning trading, shares rose 1.6% to 610p.
-- Adds broker comment and share price, changes 2019 guidance in line with IAG amendment --