International Consolidated Airlines Group SA (LON:IAG) reported third quarter revenues of €2.7bn, a 118.6% increase year-on-year. That reflects an increase in passengers flying further on fuller planes, while cargo volumes also increased substantially.
Q3 2021 hedge fund letters, conferences and more
Fuller planes and longer flights meant average cost per kilometre fell substantially, and as a result, underlying operating losses improved from €1.3bn to €485m.
The group’s shares were unmoved in early trading.
International Consolidated Airlines' Planes Are Getting Back Into The Air
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown:
“Airlines’ high fixed cost base means that now IAG’s planes are finally getting back into the air the effect on profits is dramatic.
IAG is operating a fraction of its 2019 flights, and these planes are far from bursting at the seams, but losses per seat kilometre flown have narrowed from €9.14 to €2.98. That’s because the group’s fixed costs, think plane leases, head office and staff costs, are spread over a far wider pool of flights. Meanwhile variable costs like fuel, aircraft handling and landing fees are increasing at a slower rate than revenue. If the group can maintain a similar dynamic in the fourth quarter, when it's set to increase the number of flights on offer once more, it might be within touching distance of breaking even – although management have budgeted for further losses.
Despite the progress there is a long way to go before IAG returns to where it was pre-pandemic. Until it gets back into cash flow positive territory it will continue to lump around a growing parcel of debt, which must ultimately be repaid from a business that may well end up being smaller than it was in 2019. The share's current price to book ratio is a perfect illustration of just how much damage has been done over the last 18 months, at over seven versus a long term average of less than two the pandemic has wiped out equity value and at one point left the group clinging on – it may be an accounting technicality, but it’s a telling one.”
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