International Airlines Group Q1 2018 Results

IAG has released its financial results for Q1 2018 and provided an update on the status of talks with Norwegian and Boeing 787 issues at BA.

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International Airlines Group - Aer Lingus, BA, Iberia, Vueling
International Airlines Group

International Airlines Group, the parent company of Aer Lingus, BA, Iberia, LEVEL and Vueling, has today, Friday 4 May 2018, released its first quarter results for 2018.

The figures themselves contain few surprises. IAG reported an increase in operating profit to €280m, and increase of €120m from €160m in the previous year.

There was less positive news at Air France KLM. Strikes at Air France have resulted in a widening of its first quarter operating loss from €33m to €118m.

IAG also provided an update in its presentation to analysts on a number of current issues:

Norwegian Rejects Two Conditional IAG Bids

IAG confirmed it has been in discussions with Norwegian and has issued the following statement:

On 12 April 2018, IAG announced that it had acquired a 4.61 per cent ownership position (minority investment) in Norwegian Air Shuttle ASA (Norwegian). The minority investment was intended to establish a position from which to initiate discussions with Norwegian, including the possibility of a full offer for Norwegian. IAG confirms that it has had contact with the Norwegian Board regarding a possible offer, without reaching an agreement. IAG is currently considering its options in relation to Norwegian.

In response, Norwegian issued the following statement:

The Board of Norwegian Air Shuttle (NAS) confirms that it has received two separate conditional proposals from IAG Group in relation to an acquisition of 100 percent of the share capital of NAS.

These proposals were reviewed in conjunction with NAS’ financial and legal advisers, and were unanimously rejected on the basis that they undervalued NAS and its prospects. The Board of NAS remains fully committed to delivering on its stated strategy, for the benefit of all NAS shareholders.

It is worth bearing in mind that IAG’s first offers for both Aer Lingus and Vueling were rebuffed. The initial merger talks between BA and Iberia which led to the formation of IAG were also very protracted.

One “known unknown” is what conditions IAG attached to its first two bids which Norwegian rejected.

IAG has said that it will continue to pursue growth at its nascent low cost long-haul brand LEVEL having yesterday approved two additional aircraft for the brand. IAG is also looking to add more European cities to its network and claims that advance bookings at Paris Orly are very strong.

Whilst not naming any individual airlines, IAG CEO Willie Walsh expects some weaker European airlines to fall into difficulty due to rising fuel prices.

Willie Walsh was subsequently asked if Norwegian could continue to pursue its growth strategy on a standalone basis. The answer was a firm No.

Boeing 787 Dreamliner Engine Issue

As has been well reported, BA has been tactically cancelling some Boeing 787 flights due to engine maintenance requirements.

Willie Walsh confirmed that this issue will increase into May and it won’t be fully resolved by August 2018.

Willie confirmed that BA is in discussions with a number of carriers, including Qatar Airways, on leasing aircraft. This would be subject to regulatory approval.

Willie Walsh described Rolls Royce’s performance as “unacceptable” and it will be pursuing compensation, beyond any contractual entitlement.

IAG Aircraft Orders

IAG confirmed it has been in discussion with both Airbus and Boeing and engine manufacturers GE and Rolls Royce on future aircraft orders very recently.

Talks with both Boeing and GE were considered to be “particularly constructive of late”.

Airlines do not comment publicly on the status of talks with aircraft and engine manufacturers without reason. Given the frustration of IAG with both Airbus over late deliveries of Airbus A320neo aircraft and Rolls Royce over Boeing 787 engine issues, this is a clear message to Airbus and Rolls Royce.

Changes to IAG Frequent Flyer Programmes & Avios

Work continues on planned changes to IAG frequent flyer programmes including the BA Executive Club.

These are expected to include the introduction of a single “Avios bank” across all IAG frequent flyer programmes and “dynamic pricing” of reward flights. However, no firm date has still been given for the announcement of these changes.

Austria Growth

IAG confirmed it is looking at opportunities for organic growth at Vienna as a number of airport slots have been returned to the pool by Niki, which IAG lost out to buying late last year.

We welcome any thoughts and comments below:

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