IAG swings to FY profit, to buy out rest of Air Europa for €400m

British Airways owner IAG swung to a full year profit as international travel recovered from the Covid pandemic and said it had agreed to buy out the 80% of Air Europa it does not own for €400m in a move to turn Madrid into a major airport hub.

The group, which also owns Iberia, Vueling and Aer Lingus, reported an operating profit of €1.25bn in 2022 as Covid travel restrictions were lifted, compared with a loss of €2.7bn a year earlier.

“Further recovery in profits expected in 2023, with full year operating profit before exceptional items expected to be in the range of €1.8-2.3bn, based on current foreign exchange rates and jet fuel forward prices. However, we are mindful of uncertainty in the macro environment and fuel and non-fuel cost inflation,” the company said on Thursday.

"2022 was a year of strong recovery, driven by sustained leisure demand and markets reopening. At this point of the year we continue to see robust forward-bookings, while also remaining conscious of global macro-economic uncertainties."

Capacity reached 78% of pre-Covid levels and hit 87% of 2019 levels in the final quarter.

However, aviation fuel unit prices are up 30% compared with 2019, with costs rising to €6.1bn from €1.78bn as the Russia-Ukraine war drove oil prices higher.

Total costs for IAG almost doubled from €11.2bn to €21.8bn between 2021 and 2022.

"As a long-haul specialist, IAG has been one of the last names in the sector to gain momentum following the pandemic. Of course, aviation has flown straight into another hurdle in the form of a cost-of-living crisis," said Hargreaves Lansdown analyst Sophie Lund-Yates.

"So far it seems pent up demand for travel is keeping things propped up, but there is a limit to how long this can continue. It’s heartening to see IAG’s capacity ramping back up to pre-pandemic levels – getting to this point didn’t come without its well-publicised challenges."

"Expanded flying programmes and the agreed acquisition of the remaining Air Europa stake both mean IAG is in the best position possible to capture as much of the market as possible. In times of economic difficulty it’s common to see consolidation in the aviation sector, BA’s enormous brand power and scale means it’s able to make the most of changing market dynamics."

However, Lund-Yates warned that IAG's debt pile - at 3.1 times cash profits - was "too heavy" following efforts to keep liquidity in check during the pandemic.

Reporting by Frank Prenesti for Sharecast.com