British Airways owner International Consolidated Airlines Group (LON:IAG) reiterated that profits are likely to be flat this year as it was hit by lower revenue per passenger and higher costs in the first quarter, but claimed there has been no impact from Brexit uncertainty.
The Anglo-Iberian airline operator cut its guidance for full-year passenger unit revenue, even though it should improve over the rest of the year, but expects an improvement in non-fuel costs.
A first-quarter operating profit of €135mln before exceptional items was down 60% compared to last year’s Easter-boosted period, with a chunk of one-off items in early 2018 meaning total operating profits were down 86% year-on-year. Adjusted earnings per share were down 58% to 3.7 euro cents.
"In a quarter when European airlines were significantly affected by fuel and foreign exchange headwinds, market capacity impacting yield and the timing of Easter, we remained profitable,” said chief executive Willie Walsh.
He repeated his earlier guidance that full-year operating profit before exceptional items will be in line with 2018, with passenger unit revenue flat where before it had been expected to rise. Non-fuel unit costs are now expected to improve, whereas before they were seen flat.
For the first three months of the year, passenger unit revenue was down 0.8%, or 1.4% at constant currencies, though total revenue rose 5.9% to €5.32bn.
Walsh told reporters that there had been no impact from Brexit uncertainty on bookings, while also adding that IAG was not bidding for troubled tour operator Thomas Cook's airline, amid recent speculation.
After the rise in oil prices in the past six months, fuel costs mushroomed 15.8% and non-fuel costs inched 0.8% higher. There was a €61mln impact from foreign exchange swings, with non-fuel unit costs down 0.6% and fuel costs up 11.1% constant currency rates.
The sharp fall in profit was "largely as expected", said broker Liberum, reflecting headwinds from currencies, industry capacity, fuel costs and Easter timing. Analysts noted that the 2.9% operating margin compared favourably with the losses posted by the other main network carrier groups, although the first quarter is the weakest, seasonally.
At Hargreaves Lansdown, George Salmon said: “It’s not every day you’ll see a company’s profits fall so sharply but the shares still rise. But when your competitors have slipped into a loss, it’s perhaps not a surprise.”
Likewise, Salmon said Walsh stood out by not bemoaning Brexit uncertainty, unlike his peers.
IAG shares were up more than 3% to 505.6p on Friday morning.