British Airways parent company International Consolidated Airlines reported an operating profit of 18.9% on Friday morning. ICA, which has a market cap of $16.49 billion and also owns Iberia, Aer Lingus and Vueling, said late last year that it plans to increase underlying earnings before restructuring costs to €6.5 billion per year on average between 2018 and 2022, up from €5.3bn per year on average for 2016-2020.

In January IAG reported that the number of passengers it carried over the last twelve months increased by 7.5% but group traffic – a measure of revenue per passenger kilometre – increased by 3.2% on the year.

The airline group reported that passenger unit revenue was down for the year by 1%, although up 1.5% in constant currency terms. Profit after tax before exceptional items saw a 12.7% increase. CEO Willie Walsh said that all of the group’s airline brands had performed extremely well, with their best ever individual financial results.

International Consolidated Airlines Group share price – growth ahead?

The International Consolidated Airlines Group share price has been climbing since it hit a bottom of 591 earlier this month and the prospects now look a lot rosier for the airline group. At the time of writing ahead of Friday’s open the share price was 621 but we think that there is scope for 670-680 in the not too distant future.

The demise of several budget airlines in 2017 has opened up a few opportunities in Europe for ICA but Europe remains a crowded market for the airline industry. After budget airline Monarch famously went bankrupt overnight in the autumn last year leaving passengers stranded across Europe IAG snapped up the airline’s Gatwick runway slots. It also put a bid in for Nicki airline, formerly of Air Berlin which filed for insolvency in August last year although it eventually lost the €36.5 million bid to Nicki’s original owner race car champion Nicki Lauda.

But the real growth for ICA could come from Chinese tourist traffic. The company has been lobbying hard for the UK government to start introducing 10-year visas for Chinese visitors after the UK and China signed a new bilateral agreement which could see the number of flights between the two countries rise to 150 from the current 40.

The UK issued only about 500,000 visas to Chinese tourists in 2016 while France, Germany, Italy and Spain together issued 1.5 million. In the same year a total of 122 million Chinese tourists travelled abroad, a 4.3% increase on the year before. In Europe, Finland remains a significant airline hub for Chinese tourists because of special rights it has in place with Russia allowing Finnish airlines to fly a shorter route across Russian airspace. But with the increase of flights to the UK Britain could challenge this top slot.

The Armchair Trader says:

IAG shares remain an interesting investment. They rose about 15% over the last twelve months when compared with the overall FTSE 100 index which is up by only about 10 points on 12 months and given the company’s revenue growth, expectations are that the International Consolidated Airlines Group share price is likely to continue the upward trend.

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Commodities and Shares Editor
22nd February 2018
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