IAG profit buffeted by fuel costs and competition

International Consolidated Airlines’ (IAG) profit more than halved in the first quarter as the owner of British Airways was buffeted by rising fuel costs, currency swings and stiff competition.

Operating profit in the three months to the end of March dropped 60% to €135m (£117m). Total revenue increased 5.9% to €5.32bn but passenger revenue per available seat fell 0.8% to 6.16 cents as excess market capacity and the late timing of Easter affected demand for IAG flights.

Non-fuel unit costs before exceptional items rose 0.8% to 5.06 cents but were down 0.6% at constant currency.

Willie Walsh, IAG’s 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."

IAG is the latest European airline to report pressure on revenue from more capacity in the market and on expenses from rising fuel costs. Lufthansa and Air France-KLM’s were among carriers whose losses widened in the first few months of 2019.

At 10:41 BST IAG's shares were up 4% to 509p as investors warmed to the company's resilient performance in a tough market.

IAG said average fuel prices were slightly lower than a year earlier but its fuel unit costs rose 15.8% because of unrepeated hedging gains in 2018 and the stronger US dollar. The dollar’s strength also cost IAG a net €61m in transaction and translation costs.

The FTSE 100 company said at current fuel prices and exchange rates operating profit would be flat in 2019. IAG said it expected passenger unit revenue at constant currency to improve for the rest of 2019 leaving it flat for the year.

George Salmon, equity analyst at Hargreaves Lansdown, said:

“It’s not every day you’ll see a company’s profits fall so sharply but the shares still rise. But when your competitors have slipped into a loss, it’s perhaps not a surprise.

"The main factor holding back profits is increased fuel prices, which have been compounded by a rise in the US dollar. The group is confident it can offset these macro headwinds with cost efficiencies elsewhere, such that profits come in level with last year. That would be an impressive achievement in the current climate.”