International Consolidated Airlines Group SA (BABWF) reported a 27% increase in operating profits, reaching EUR4.4 billion.
The company achieved a 13.8% operating margin, which is considered industry-leading.
Free cash flow generation was strong at EUR3.6 billion after investing EUR2.8 billion in the business.
The company announced a share buyback program of EUR350 million and plans to return up to EUR1 billion of excess capital to shareholders.
IAG Loyalty continues to deliver high double-digit margins and asset-light earnings growth, becoming the third-largest operating company by profit within the group.
Negative Points
Aer Lingus faced significant industrial action and strong competition at its Dublin hub, impacting its financial performance.
The company experienced a larger-than-expected negative FX impact in Q4, affecting non-fuel unit costs.
There is a requirement to pay EUR557 million of VAT to HMRC, pending the outcome of a legal appeal.
CapEx is expected to increase to around EUR3.7 billion in 2025, which may impact free cash flow generation.
The Trent 1000 engine issues required capacity adjustments at British Airways, affecting operational efficiency.
Q & A Highlights
Q: On the Loyalty scheme changes, has there been any customer reaction, and can you provide an update on the BA rollout of the new app and website? A: Sean Doyle, Chairman and CEO of British Airways, stated that there hasn't been any significant change in travel patterns or behavior from the executive club since the rollout. The new app and website are performing well, with 65% of routes now booking through the new platform. A beta version of the app is being tested, with a full rollout expected in Q2.
Q: Can you update us on your expectations for the RASK impact of the new retailing platform and the situation with the Trent 1000 engines? A: Nicholas Cadbury, CFO, mentioned that while they are confident in the recovery and margin build-up, they are not providing specific RASK guidance. Regarding the Trent 1000 engines, Luis Gallego Martin, CEO, noted that they are working closely with Rolls-Royce to improve engine supply and expect a durability enhancement package soon.
Q: What is the true potential for BA's business margins, and are there concerns about capacity pressure in the UK and US markets? A: Nicholas Cadbury, CFO, stated that they are confident in achieving a 15% margin by 2027 for British Airways. Regarding capacity, they have seen strong transatlantic growth and expect continued strong demand into Q1.
Q: If there is a positive resolution in Ukraine, how might that impact your network, and are there any inorganic growth opportunities? A: Luis Gallego Martin, CEO, explained that a resolution could improve air traffic control and network operations. They are also considering opportunities with the Portuguese government's privatization process, which could enhance their presence in markets like Brazil.
Q: Can you provide more detail on the 26 aircraft expected this year and the impact of the MRO process at Gatwick? A: Nicholas Cadbury, CFO, noted that the 26 aircraft include two wide-body and several narrow-body deliveries. Sean Doyle, CEO of British Airways, added that the MRO process at Gatwick will enhance on-site maintenance capacity, reducing costs and improving operational resilience.
Q: What are your expectations for unit costs in 2025, and is there any update on foreign entity limitations affecting index inclusion? A: Nicholas Cadbury, CFO, indicated that unit cost trends will be similar to previous years, with some FX headwinds. Regarding index inclusion, there are no new updates, but they have been included in more indices due to dividends and share buybacks.
Q: How should we think about your pretax outlook for 2025, and what are the trends in BA Holidays? A: Nicholas Cadbury, CFO, mentioned that free cash flow will be impacted by increased CapEx and VAT payments. Adam Daniels, CEO of IAG Loyalty, noted strong performance in BA Holidays, with bookings looking strong for 2025, particularly in premium segments.
Q: What are your views on Gatwick versus Heathrow runway extensions, and how do you see capacity growth across operating companies? A: Luis Gallego Martin, CEO, supports runway development at both airports if done affordably and sustainably. Capacity growth is expected to be around 3% to 4% per annum, with a focus on total revenue rather than just capacity growth.
