IAG profits soar in third quarter but shares lose altitude

Profits soared at International Consolidated Airlines (IAG) in the third quarter thanks to rising revenues, the acquisition of Aer Lingus and cheap fuel.

The British Airways and Iberia owner, fresh from announcing its first ever dividend the day before, also nudged the joystick higher on its full year guidance to an operating profit between €2.25bn and €2.3bn, excluding Aer Lingus.

For the key three months to 30 September, IAG’s operating profit before exceptional items of €1.25bn was a 39% increase on the same period last year, beating the consensus analyst forecast by 2% and taking the nine-month total to €1.81bn, a 59% year-on-year gain.

Aer Lingus contributed an operating profit of €45m since it joined IAG on 18 August.

“While the airline's profitability is seasonal, Aer Lingus is cost-effective and provides a natural gateway to build our business between Europe and North America. It's a great asset for the group,” said chief executive Willie Walsh.

Aer Lingus helped revenue per passenger unit for the quarter rise 6.5%, also helped by beneficial currency rates, being a 3.3% fall otherwise.

Fuel unit costs for the quarter fell 8.6%, or 19.7% at constant currency. Non-fuel unit costs increased 5.6% but if excluding Aer Lingus and at constant currency fell 3.5%.

"We're reporting strong quarter results with a positive contribution from all of our airlines,” said Walsh.

"Our passenger unit revenue showed a better trend than in the second quarter of the year and our cost performance remained strong.

On Thursday he had announced IAG's first dividend, an interim payment of 10 euro cents per share.

“For the full year we expect to pay out 25% of our underlying profit after tax in dividends and plan to announce a proposal for a final dividend for 2015 when the full year results are published.”

Cash of €6.79bn at period end was up €1.84bn over nine months, including €958m from Aer Lingus.

Shares in IAG fell on the day, having risen 22% in the year to date.

As analysts at Societe Generale said, the raised guidance was largely factored into consensus forecasts, "so we do not expect to see any change to consensus estimates and we expect the share-price reaction to be muted or slightly negative, given the strong share price performance".