British Airways owner IAG reported its first annual profit since the pandemic as the airline industry continues to rebound from Covid-19 as pent-up desire to get away lifted its performance.
The company, which also owns Iberia, Vueling and Aer Lingus, said it was back in the black for the first time since the pandemic started.
Increased demand saw strong leisure traffic recovery and business traffic steadily improving. It said its premium leisure segment “performed very well” as travellers splashed out for luxury seats. Analysts say demand for luxury travel – roomier seats with more amenities – is lifting airline profits even as business travel still lags.
The airline group made operating profits before exceptional items of €1.26bn (£1.1bn) in 2022, up from a €2.97bn loss the year before. All its airlines were profitable last year with passenger capacity at 87 per cent of pre-pandemic levels in the quarter up to the end of December.
Luis Gallego, IAG chief executive, said demand continues to be strong and it had “robust forward bookings” across all routes at this point of the year. He said 2022 was “a year of strong recovery, driven by sustained leisure demand and markets reopening”.
“We are transforming our businesses, with the intention of returning IAG to pre-Covid levels of profit within the next few years,” he added.
British Airways is the latest airline to report strong figures, suggesting the aviation industry is recovering more quickly from the pandemic than experts originally thought they might. Australian airline Qantas and Singapore both reported profits while Air France-KLM said it was also benefitting from a reboudn in global travel demand.
Collectively, the aviation industry suffered an estimated $370bn (£309bn) loss in global revenue due to Covid-19.
Airlines continue to struggle to meet much of the pent-up demand from consumers eager to travel after being frustrated by coronavirus-related restrictions.
Carriers have been hampered by staff shortages, limiting their ability to get aircraft back in the air. Restrictions at hubs such as Heathrow and Schipol added to their difficulties. Fewer planes mean less seats keeping the price of flying anywhere high.
With business travel demand still significantly below pre-pandemic levels, so-called premium leisure travellers are helping airlines increase their revenues. Some airlines now report their premium seats are selling out before their economy ones – a complete reversal of what happened before Covid struck.
Despite their first profits, IAG shares finished down six per cent. Russ Mould, investment director at AJ Bell, said: “It is better to travel than arrive’ could be a neat tagline for British Airways owner International Consolidated Airlines – talking up the pleasures of air travel – instead, this stock market truism was underlined as shares in the company descended despite unveiling its first annual profit since the pandemic.
“As a legacy of Covid, debt is highly elevated. This could make the market uncomfortable, particularly if there is any indication it is preventing IAG from making necessary investments in its business.
“The pledge to return to pre-Covid levels of profit in the next few years gives investors something to look forward to but also demands some patience – and there is no dividend to reward shareholders for sticking around.”
IAG also announced it has agreed to buy, subject to regulatory approval, the remaining 80 per cent stake it doesn’t already own in Air Europa, Spain’s third largest airline.
The €400m deal would help grow Madrid as a hub as well as open up Latin America and beyond, with “benefits for customers, employees and shareholders”, the company said.