FTSE 100: British Airways owner nears pre-COVID capacity after summer travel boost

A British Airways taxis through the heat haze at Heathrow Airport
British Airways owner IAG has seen an increased demand for travel over the summer despite a sharp cost of living crisis, soaring inflation and reduced wages. Photo: Press Association (PA)

The owner of British Airways has revealed that its passenger numbers will return to near pre-pandemic levels at the start of next year.

IAG (IAG.L) announced on Friday that it has seen an increased demand for travel over the summer despite a sharp cost of living crisis, soaring inflation and reduced wages.

Capacity in the first three months of 2023 is now expected to come in at around 95% of levels seen in 2019, up from 87% in the current quarter, IAG said.

The group returned to profit in the third quarter, posting €1.2bn (£1.04bn/$1.2bn) in the three months to 30 September, after it swung to a loss of €452m last year.

It now predicts full-year operating profits of €1.1bn even though jet fuel prices have almost doubled in 2022 compared to the previous year.

The FTSE 100 (^FTSE) firm, which also owns Iberia, Aer Lingus, and Vueling, saw its revenues recover to pre-pandemic levels despite recent disruption at Heathrow Airport, and its network in Asia Pacific largely remaining closed.

Third quarter revenue of €7.3bn was up 170% against 2021 as prices have climbed since March, when Russia’s invasion of Ukraine sparked rising costs for commodities around the world.

“All our airlines were significantly profitable and we are continuing to see strong passenger demand while capacity and load factors recover,” Luis Gallego, chief executive of IAG, said.

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“Leisure demand is particularly healthy and leisure revenue has recovered to pre-pandemic levels. Business travel continues to recover steadily.

“While demand remains strong, we are conscious of the uncertainties in the economic outlook and the ongoing pressures on households.”

He added: “Against this backdrop, we are focused on adapting our operations to meet demand, strengthening our balance sheet by rebuilding our profitability and cashflows, and capitalising on our high level of liquidity.”

Net debt fell 5.2% during the period to €11.1bn. The company also expects "significantly positive" net cash flow.

Shares were 1.7% lower on the day in London.

Adam Vettese, analyst at social investing network eToro, said: “It would be something of a surprise, but the firm could quite conceivably have come out of the pandemic leaner and stronger as a result, in financial terms.

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"It is still no stranger to controversy, very much embroiled in the summer flight chaos across Europe which led to capacity limits imposed by the government at airports such as Heathrow.

“But if the firm really is making more money despite flying less passengers, then as it builds more capacity back the outlook should continue to improve. The oil price shock is receding too which will help, but perhaps the only potential headwind now will be customers struggling to afford travel and cutting back on non-essential trips.”

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