IAG – Positive Outlook, But Progress Comes At A Cost

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IAG (LON:IAG) flew 65.1% of pre-pandemic capacity, compared to 19.6% in 2021. Higher capacity increased costs, and IAG reported an underlying operating loss of €754m in the first quarter. That’s an improvement on last year’s -€1.1bn.

Demand is “recovering strongly”, and in -line with expectations. As such, the group expects to be profitable from next quarter.

The shares fell 5.8% following the announcement.

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Q1 2022 hedge fund letters, conferences and more

IAG's Earnings

Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown:

“There is no getting away from the damage inflicted on IAG. Losses well north of €700m are a stark reminder of the long road ahead. A moderation of expansion plans in light of staff shortages, following the issues caused by cancellations more recently, won’t be very well received. However, we are finally seeing genuine shoots of progress, with profits expected to sprout from next quarter. At the moment, IAG is in the sticky point of trying to massively ramp up capacity, but planes aren’t quite full enough, or frequent enough, which means the costs associated with getting things going again are stifling profits.

Looking to the rest of the year, the outlook makes for reasonable reading. IAG will take longer to recover than its short-haul focussed friends, but that doesn’t mean it should be discounted. There’s an argument to say that now the world is largely re-opening, customers could be inclined to splurge on a long-haul trip having been stuck at home for years. The other side of that story though is of course the cost-of-living crisis. Those that often travel first class are likely not going to see much of a change in spending habits, but the situation may well act as a drag on BA’s shorter duration routes.”

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