IAG shares fly higher helped by lower fuel costs

IAG shares rose 5% this morning to 600.17p as the owner of British Airways and Iberia revealed a 10% surge in operating profits – hitting €170m – for the first quarter of 2017. The new numbers appear impressive given that the first quarter is traditionally slow for the airline.

IAG boss Willie Walsh indicated that operating profits for the full year may also climb – as long as fuel prices and exchanges rates avoid volatility. Meanwhile lower oil prices, down 11%, are helping IAG. 

Cheaper fuel costs

“A lower fuel bill scenario that is marginally lower than last reported,” said Deutsche Bank analyst Anand Date, “we expect to see FY17E [estimated] consensus increase low-single-digit. Overall we believe IAG’s Q1 results demonstrate good continued progress.”

Date added that IAG also boosted guidance on capacity “but overall continues to plan for low growth in 2017 of +2.8%, previously +2.5%.” Date thinks Q3 capacity growth is expected to near +1.6% from the +0.6% previously indicated “but we believe this is still a very low level of growth that should suggest strong pricing in the quarter.”

Currency hit

The impact of currency exchange on IAG, which also owns Aer Lingus and Spanish low-cost carrier Vueling, was €32m due to converting sterling profit back into euros IAG chief exec Willie Walsh said.

"In March we launched LEVEL,” Walsh added, “our new longhaul low cost airline brand, which starts flights from Barcelona to Los Angeles, San Francisco, Punta Cana and Buenos Aires in June. It's already been extremely successful with sales running well ahead of expectations”.

Date says the initial commentary on LEVEL “appears encouraging”. IAG shares are up 17.6% YTD. Deutsche Banks have put a 620p price target on the stock. 

Other airlines including Air France-KLM have made recent positive noises thanks to claimed strong summer bookings. Earlier this morning easyJet said total passenger numbers surged 11.7% to 7.12m for April. It also boasted a higher load factor, up from 90.4% in April 2016 to 92.9% in April 2017.