IAG profits hit hard by fuel costs
May 10, 2019, 1:11 am
#1
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IAG profits hit hard by fuel costs
As reported by the BBC, and Reuters :
“Pre-tax profits at IAG - owner of British Airways - in the first three months of the year have fallen 61% to €86m (£74m).
Willie Walsh, IAG chief executive, said: "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 and are reporting an operating profit of €135m".
"At constant currency, non-fuel unit costs were down 0.6% while passenger unit revenue decreased by 1.4 per cent."
“Pre-tax profits at IAG - owner of British Airways - in the first three months of the year have fallen 61% to €86m (£74m).
Willie Walsh, IAG chief executive, said: "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 and are reporting an operating profit of €135m".
"At constant currency, non-fuel unit costs were down 0.6% while passenger unit revenue decreased by 1.4 per cent."
May 10, 2019, 2:20 am
#2
Join Date: Jun 2009
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Press release:
IAG - International Airlines Group - News Release
Results presentation (PDF):
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDE5Mzk2fENoaWxkSUQ 9LTF8VHlwZT0z&t=1&cb=636930599122168138
IAG - International Airlines Group - News Release
Results presentation (PDF):
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDE5Mzk2fENoaWxkSUQ 9LTF8VHlwZT0z&t=1&cb=636930599122168138
May 10, 2019, 3:05 am
#5
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Easter doesn't move without notice, but it can fall in either Q1 or Q2 and occasionally the peak travel straddles both reporting periods. The movement of the feast is a handy excuse when it fell in the other quarter the preceding year. Other peak travel periods such as Christmas and Summer are more fixed.
May 10, 2019, 3:27 am
#8
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At the operating level these are not at all bad numbers especially compared to EK's annual performance recently announced, and LH Groups shoddy Q1 €350m operating loss.
Any carrier not reporting in US$ with US$ as their main trading currency is being hit hard by rising oil and strengthening dollar, hedge or no hedge.
I actually think these are creditable numbers and look forward top seeing AFKL equivalents!
Any carrier not reporting in US$ with US$ as their main trading currency is being hit hard by rising oil and strengthening dollar, hedge or no hedge.
I actually think these are creditable numbers and look forward top seeing AFKL equivalents!
May 10, 2019, 5:36 am
#10
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Wonder how they'll claw back the reduction in per passenger revenue? Avios devaluation or reduction in frills for BAEC members maybe.
May 10, 2019, 5:40 am
#11
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Closing pension schemes is not part of operating profit, in fact I suspect BA bear considerable forward costs from their pension liabilities. It's a cheap and low shot to have a go at BA for doing what most private sector companies have been pretty much obliged to do.
Wonder how they'll claw back the reduction in per passenger revenue? Avios devaluation or reduction in frills for BAEC members maybe.
Wonder how they'll claw back the reduction in per passenger revenue? Avios devaluation or reduction in frills for BAEC members maybe.
A cheap shot would be asking when BA is going to give its pilots back the £5,000 pay cut they voluntarily took after 9/11 to stop the airline going bust but which IIRC has not been returned despite £1bn+ of annual profits now.
May 10, 2019, 5:42 am
#12
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"headwind" is a metaphor for some unfavourable external condition.
"Foreign exchange headwind" is unfavourable foreign exchange rates. Eg if you earn money in Euros but you have a lot of costs in USD, then if the Euro:USD exchange rate becomes worse than you have to pay out more Euros for the same amount of USD cost.
So in the case of fuel, which is priced in US Dollars, then if the fuel price is constant in USD but the Euro:USD exchange rate is worse, you need to pay out more Euros for the same number of USD on the fuel invoice.
Or if you report in Euros but you earn a lot of GBP and the GBP to Euro exchange rate increases, then earning the same amount of GBP will turn into less Euros so it looks like you made less money - and to a Euro-person, you did.
The reason for stating a foreign exchange headwind is that you don't actually have to convert those GBP into Euro (for the latter example). You can just hold them and convert them later, or use them to pay your costs in GBP too (like staff costs in the UK). So there's real money loss if you have to actually convert GBP into Euro to pay something, but also just a conversion that looks worse without actually losing money when you report your GBP holdings in Euro.
"Foreign exchange headwind" is unfavourable foreign exchange rates. Eg if you earn money in Euros but you have a lot of costs in USD, then if the Euro:USD exchange rate becomes worse than you have to pay out more Euros for the same amount of USD cost.
So in the case of fuel, which is priced in US Dollars, then if the fuel price is constant in USD but the Euro:USD exchange rate is worse, you need to pay out more Euros for the same number of USD on the fuel invoice.
Or if you report in Euros but you earn a lot of GBP and the GBP to Euro exchange rate increases, then earning the same amount of GBP will turn into less Euros so it looks like you made less money - and to a Euro-person, you did.
The reason for stating a foreign exchange headwind is that you don't actually have to convert those GBP into Euro (for the latter example). You can just hold them and convert them later, or use them to pay your costs in GBP too (like staff costs in the UK). So there's real money loss if you have to actually convert GBP into Euro to pay something, but also just a conversion that looks worse without actually losing money when you report your GBP holdings in Euro.
May 10, 2019, 6:15 am
#13
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BA's current and recent profits would seem quite adequate to pay more into pension funds if they wanted to.
May 10, 2019, 6:17 am
#14
Join Date: Jan 2008
Posts: 3,839
Closing pension schemes is not part of operating profit, in fact I suspect BA bear considerable forward costs from their pension liabilities. It's a cheap and low shot to have a go at BA for doing what most private sector companies have been pretty much obliged to do.
Wonder how they'll claw back the reduction in per passenger revenue? Avios devaluation or reduction in frills for BAEC members maybe.
Wonder how they'll claw back the reduction in per passenger revenue? Avios devaluation or reduction in frills for BAEC members maybe.
Granted the airline industry is very far away from perfect competition but the same arguments about direct increase on price have been made, with scant evidence to support, for EU261 and various other “costs” to airlines.
History tells us the wider macro-environment (i.e. demand side factors) is a much bigger influence.
“Cost-plus” pricing belongs in the 80s.
May 10, 2019, 6:18 am
#15
Join Date: May 2017
Posts: 305
This. The market seems to agree - IAG shares currently up around 2% today.