IAG profits fly past pre-pandemic levels on strong leisure demand

British Airways owner IAG on Thursday more than doubled annual profit as demand continued to rebound from the effects of the Covid pandemic.

Operating profit before exceptional items for the year to December 31 came in at €3.5bn compared with 2022’s €1.24bn and the pre-pandemic figure of €3.25bn.

“Demand continues to be robust, with particular strength in leisure travel. We are currently 92% booked for Q1 2024 and 62% booked for H1 2024, ahead of our position last year,” IAG said.

"Airline markets worldwide were particularly strong in 2023 as demand for experiences increased and lifestyle priorities changed post-Covid-19. Leisure travel has been the strongest driver of passenger demand across all of our cabins. Corporate travel continues to return more slowly, in particular in short duration and short-haul trips."

The industry has seen a sharp spike in demand since Covid travel restrictions were lifted, with passengers prepared to pay eye-wateringly high fares. Combined with reduced capacity, the need to rebuild staffing levels after axing thousands of jobs and scaled-back flight schedules, airlines have been raking in cash.

IAG, which also owns Ireland's Aer Lingus and Spanish carrier Iberia, also said it had been working hard to resolve issues at Britain's Heathrow airport - located to the west of London - where flight delays and baggage losses had proved to be a major embarrassment for the company.

It said British Airways "is in the middle of a major transformation of its commercial digital platforms which it expects to deliver significant revenue benefits over the next three years".

Improvements to British Airways' 'ba.com' website and app are expected in 2024, including a "better content management system" IAG added.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said strong results from aircraft engine maker Rolls-Royce showed wide-body travel was in for a strong end to the financial year.

"IAG has put a lot of work into honing its routes, focusing its capacity growth on north and south Atlantic markets. There’s also been a meaningful increase in IAG Loyalty members, which acts as a potential boost further down the line," she added.

However, there were also "challenges to overcome" as IAG invested large amounts on its transformation overhaul, which included leveraging data and technology to improve the customer experience.

"Many frequent users of ba.com will cheer the news that the website’s getting some much-needed TLC, but IAG is also hoping to boost efficiency by reducing disruption. These are all great targets, but the pace of delivery is far from guaranteed. It’s crucial that BA gets this right. The dominance of airlines can fade at short notice if customers lose their patience.”

Reporting by Frank Prenesti for Sharecast.com