Upbeat IAG strikes positive note as BA and Iberia head growth in 2024

After delivering one of the highest operating profits in its history, European airline group IAG offered little by way of firm guidance for the year to come but was in positive mood in its commentary.

IAG delivered a group operating profit of €3.5 billion ($3.8 billion) in 2023, a trebling on its 2022 profit and outstripping profit levels from 2019 before the pandemic hit. That profit was only topped – and only after one-off gains are included – by the €3.67 billion it made in 2018.

The increased profit was driven by strong demand and restoration of capacity as passenger markets continued to reopen from the pandemic. Passenger revenues climbed almost a third to €25.8 billion and contributed to a 28% rise in overall revenues to almost €30 billion.

”2023 was a very good year, driven by customer demand and the benefit of our transformation programme,” said IAG group chief executive Luis Gallego during a full-year results call on 29 February.

IAG has not issued profit guidance for the year to come, but does highlight continued robust demand into the first half – particularly within the strong performing premium leisure sector – and notes its forward bookings are ahead of the same stage last year.

”We expect strong demand for travel to continue,” says Gallego. ”We are focused on making the business better and stronger and more sustainable through delivering our strategy. This means we expect to generate significant cash flow in 2024, which will allow us to continue to invest in our business while maintaining a strong balance sheet position.”

All the group’s carriers improved their profitability last year. The biggest step-up came at British Airways, which accounted for around half of IAG revenues last year and the highest profit in absolute terms. 

BA’s operating margin of 10% last year though lagged Spanish carriers Iberia and Vueling, which stood at 13.5% and 12.4% respectively. IAG itself recorded an operating margin of 11.9%, fractionally shy of reaching the lower end of the group’s mid-term margin target of 12-15% outlined in November.

WHERE WILL CAPACITY GO IN 2024?

IAG lifted group capacity to the end of the year almost back to 2019 levels, but sees scope for further growth in the year to come – particularly at British Airways. While Iberia, Vueling and Aer Lingus all operated capacity above 2019 levels last year, BA capacity remained almost 10% down. 

That largely reflects the slower reopening of Asia-Pacific markets, which BA has a higher exposure to – overall IAG capacity to Asia-Pacific is still only at around 40% of 2019 levels – as well as a shortage of long-haul aircraft following the early retirement of its Boeing 747-400 fleet during the pandemic.

IAG expects to lift capacity 7% this year, led by BA and Iberia. 

Indeed, BA will take delivery of 14 of the 21 aircraft IAG is due to take in 2024. That will include five more Boeing 787s and another Airbus A350-1000, meaning the UK carrier’s long-haul fleet will be within four of its 2019 number by the end of this year.

Iberia will end the year with two more long-haul aircraft than it had before the pandemic after taking delivery another A350-900 this year, as well as its first A321XLR. “The arrival of the A321XLR at the end of this year [means] they can add destinations and frequencies in an efficient and lower-risk way,” says Gallego.

Aer Lingus is slated to take delivery of two A320neos, but IAG’s fleet plan does not allocate any of the A321XLRs to the Irish carrier – even though IAG had in its Capital Markets presentation last November indicated Aer Lingus would be the first to fly the A321XLRs in the fourth quarter of this year.

Instead two of the three A321XLRs due for delivery to IAG this year are still to be allocated to an operator. “A few of our new deliveries are yet to be assigned to airlines as we wait upon the outcome of local labour negotiations,” explains IAG chief financial officer Nicholas Cadbury.

Aer Lingus is one of the units still to agree terms on a new labour deal. ”Aer Lingus has options in both long-haul and short-haul but allocation of aircraft to deliver this growth will depend on reaching agreement with pilots,” says Gallego. “It is not that we don’t want to invest in Aer Lingus. It is an airline with more growth since they joined the group.”

Barcelona-based long-haul, low-cost unit Level will take a leased A330 during the year, but no new aircraft are slated for Vueling. Gallego says: “Vueling is planning its growth around higher utilisation with no planned new aircraft in 2024, while using leased aircraft to cover for its GTF maintenance problems.” IAG expects to lease eight A320 narrowbodies for Vueling during the year to cover for aircraft grounded by the ongoing Pratt & Whitney engine issue.

The group is also still to seal deals with pilots at Vueling. “What we want is to have a structure that allows us to invest in Vueling, because they did an extraordinary job last year. That is what we want,” says Gallego. ”But what we can’t give is something in negotiations which doesn’t make sense.”

IAG must also find a new labour agreement with unions covering further growth with Iberia Express. 

”If we close agreements [with these carriers], we will continue investing, because the three businesses make a lot of sense,” says Gallego. ”If not, we have other alternatives, because it is our job to invest money to where we are going to have the returns.”