Yesterday, IAG released their financial results from the first half of the year. In short, they’re very good.
IAG is the parent company that owns the following airlines:
- Aer Lingus
- British Airways
The full detail is available here, but lets pick over a few tidbits from the news release.
- Revenue marginally up
- Operating profit, before exceptional items, up a huge 37%
- Available seat kilometres and load factor both increased
- Fuel and staff costs down
Essentially, they’re flying more aircraft, fuller, for less, and therefore more profitably. The engine of this was British Airways; it made a profit of €741 million before exceptional items up from €631 million for the first half of 2016.
The turn around at Iberia seems to be well and truly complete as it made a profit of €84 million against a loss of €6 million last year. Aer Lingus continues to perform strongly making a profit of €59 million up from €42 million in 2016. Finally Vueling’s losses narrowed to €6 million from €54 million.
They have a very tight control of costs. Staff costs were down almost 4% (no surprise there). What they call “Handling, catering and other operating costs” were up, however this includes the British Airways IT meltdown. So far this has cost them €65m, so if you strip this out, then those costs would have been €10m down on last year. Other costs like IT expenditure and landing fees were also broadly down or flat. Fuel was down too.
What concerns me is there is only so far they can reduce costs. There have clearly been a large number of efficiencies from combining the operations of the four airlines into one. It makes no sense to have four IT platforms, four procurement departments etc. That work isn’t done yet, and I expect that there will continue to be efficiencies there which they are correct to pursue.
There were no mention of any long-term strategic investments, however being a financial report aimed at share-holders as opposed to customers, I’m not too surprised.
What’s abundantly clear is that IAG will be continuing with its current strategy, as from looking at the numbers, it’s clearly working. Despite what Alex Cruz may say about investing in the Club World experience and improving First, given this backdrop, that’s not where the focus of the group is.
Until they start seeing a meaningful drop in NPS (Net Promoter Scores), that actually translates into a drop in premium revenue, it will be full steam ahead.