Is British Airways Back?
Not yet. But the airline had a nice summer quarter, helping to boost IAG's profits.
Dear readers,
Air France-KLM struggled this summer with the Olympics in Paris and higher costs in Amsterdam, while Lufthansa Group recently admitted in an investor letter that its results "deteriorated significantly in the first nine months of 2024." Yet International Airlines Group continues to report robust profits, despite some choppiness in Dublin.
The group’s third quarter numbers were impressive, especially considering the so-so results of its competitors. IAG’s operating margin rose 15.4 percent year-over-year to €2.013 billion ($2.14 billion U.S.). Its operating margin before exceptional items was 21.6 percent, up 1.4 points compared to one year earlier.
Last summer, Iberia and Vueling carried the group. They’re still very profitable, with operating margins of more than 20 percent, but neither over-performed compared to last year’s third quarter. Now, British Airways is on the ascent — a remarkable development for an airline that has cut flights because of 787 engine issues, and one whose home market of London is not the business travel destination of yore.1
British Airways was responsible for the vast majority of the group’s third quarter increase in operating profit, according to a slide. The airline’s operating margin (before special items) rose 5.4 points year-over-year to 20.7 percent, while unit revenue increased 1.5 percent.
On the earnings call, I had hoped to learn details about why British Airways improved so much, but unfortunately, IAG doesn’t have the most revealing calls. CEO Luis Gallego answers questions more laconically than the genial Ben Smith (with his long and geeky responses), or Carsten Spohr (who sometimes opts to berate questioners and explain why they are full of shit, a move I find entertaining).
Still, the IAG call wasn’t a complete bust, as Gallego and colleagues told us the ingredients of British Airways’ turnaround: cost control, premium seat sales, and hot transatlantic demand. They also shared news about the group’s other airlines and revealed what they plan to do with their 20 percent stake in Air Europa.
Let’s dive into it.