IAG Q2 Results
 

IAG Q2 headlines

· Operating profit €555m* (2015: €530m)
· Passenger unit revenue down 6.2 per cent**
· Non-fuel unit costs up 0.8 per cent***
· Fuel unit costs down 29.3 per cent***

BA Q2 headlines

· Operating profit £302m* up 4.6 per cent (2015: £289m)
· Passenger unit revenue down 6.2 per cent**
· Underlying non-fuel unit costs (CASK) 0.5 per cent better***
· Fuel costs down 26.3 per cent
· Customer satisfaction target missed at 8.2 pts (target 9.4pts)
· Punctuality target missed at 73 per cent (target 80 per cent)
· H1 operating profit £487m* (2015: £356m)

*Before exceptional items
** At constant currency
***Before exceptional items and at constant currency

Must admit, these are better results than I expected. However, the group also took a £148m negative currency hit. BA are not happy that the fall in revenue was greater than the fall in costs.

I'm no expert, but although the BA profitability figure looks good, the decline in revenue and other missed targets don't look so good to me!

Essentially, profit driven by good decisions on fuel costs/hedging, which may not be sustainable for the long term.

I cannot believe that their internal target for punctuality is 80% :confused: That is truly shocking, and shows completely why there is absolutely no urgency to get departures away on-time, particularly at LHR.

The customer service 'miss' does not surprise me one bit.

The results show profit at the expense of everything else. Great business strategy ^

Fuel costs down 30% is a one hit wonder, they'll need a lot of enhancements to make up for that falling out the figures in future years.

I'd be interested to know what the punctuality target is i.e. whether it's like the railways where a train is 10 minutes late before it's recorded as late in the stats.

I believe it's 15 minutes.

They are being a bit more specific about full year op profit growth (low double digit %). This implies a further small c5% downgrade, and disruption (strikes) seems a more prominent reason alongside Brexit/uncertainty.

Presentation here: http://www.iagshares.com/phoenix.zht...-presentations

Guiding to 4.5% FY capacity growth instead of 4.9% (though BA least affected 2.6% vs 2.7%).

well in fairness if you look at the presentation they are still paying substantially more than current spot rate as their old hedges unwind, so there is a fair amount to fall still, albeit once converted to £, much of the benefit will be lost in adverse currency movement.

Overall not a bad set of results. The revenue decline is in line with Delta - a very well run airline also - and AA. Not unsurprising really as the warning signs of a downturn in the sector have been there for quite a while.

If you consider a 6% fall in unit revenue to be a good result then I have a bridge to sell you.

Without the fuel hedges finally unwinding it would be a mess. They can't even keep non-fuel costs under control.

They're a mixed set of results, to be honest, and partially explain the focus on cost control. However, we have to be close to the stage where we see customer satisfaction and therefore loyalty declining if they push any harder.

However, passenger unit revenue looks like a problem - airlines never generate huge returns and can easily go negative so it's not inherently suggestive of poor management.

Needs to be compared against other airlines' year-on-year - I wonder as well whether the increase in costs is driven by poor punctuality, i.e., it's under-investment that's driving it, rather than overspending.

It is of note that despite all the cost-cutting we whine about, this isn't significantly affecting non-fuel costs.

Significant issues ahead if revenue /passenger doesn't improve once favorable fuel costs drop out.

Do note that the unit revenue fall at BA is (only) 3.7%. That looks to me to be relatively decent by comparison with e.g. US carriers recent results.

It seems there's fairly broad downward pressure on RASK throughout the industry at the moment.

the issue - as it is the case for many companies - will be to maintain positive jaws.

so if income line drops (either less growth or no growth), the cost line needs to reduce in line / greater than that.

very difficult to / I can't see BA trying to break out of that cycle by investing (thus increasing the cost line) with the hope of greater customer satisfaction leading to income growth (when that is largely depressed due to external factors, i.e. not customers voting with their feet but market conditions, competition etc)

The revenue mix is also interesting. Non-premium revenue has increased from 41% in 2010 to 49% today. Will be caused by addition of Vueling, but it's not all about premium traffic any longer

Bits of it are funny (I used to do this stuff for a living).

"74% of forecast Q3 revenue is already booked" - well, erm, great but last time I looked it was 29th July! That means a third of Q3 has already gone.

This means that only (74% - 33%) 41% of expected August and September revenue has already been booked, which given that August is mainly holiday traffic and you would expect that to be booked long ago doesn't say much.

BA selling New York in Club today for £1,199 INCLUDING 3 nights in a four star hotel is probably more indicative of where we are. Same for yesterdays £1,200 Club World US West Coast deals from Scandi.

All that said, BA remains more successful than any of its competitors due to the effective duopoly on North America.