IAG hit by weakness of sterling and flight disruption

IAG hit by weakness of sterling and flight disruption

British Airways owner International Airlines Group (IAG) was forced to take a €148 million hit from the weak pound in the last quarter.
The company also warned that it expected at least €80 million in disruption costs in the second half of the year.
This follows air traffic control strikes and “significant” weather disruption which resulted in more than 1,000 flights being cancelled.
In a trading outlook, IAG said: “We have continued to experience a weaker trading environment in our UK point-of-sale business, which represents around one third of total revenue.

“On top of this, continued pound sterling weakness would reduce pound sterling profits when translated into euros in what is traditionally the most profitable part of the year.”

IAG, which also owns Aer Lingus, Iberia and Vueling, revealed that capacity growth planned for the second half of the year has been reduced while plans for raising capacity in 2017 are under review.

“Although visibility of revenue trends for quarter 4 remains low, we already have 74% of our expected revenue booked for quarter 3,” IAG said.

“Based on current fuel price and currency levels, and given our high visibility over second half cost reductions, we expect low double digit percentage growth in pre-exceptional operating profit in 2016.”

The outlook came as the company reported an improved operating profit of €555 million for the three months to June 30, up from €530 million in the same period last year.

The result was achieved despite a 10.2% drop in passenger revenue although fuel costs were down by 31.2%.

IAG recorded a 27.9% increase in operating profits for the first half of its financial year of €710 million before exceptional items and excluding Aer Lingus.

Chief executive Willie Walsh said: “We're reporting another strong performance in quarter 2 with an operating profit of €555 million before exceptional items which is up from €530 million compared to last year. Excluding Aer Lingus it would be €487 million.
"Our performance this quarter saw a negative currency impact of €148 million, primarily due to the weak pound.
“Numerous external factors affected our airlines including the impact of terrorism, uncertainty around the UK's EU referendum and Spain's political situation and increased weakness in Latin American economies.
“This led to a softer than expected trading environment, especially in June.
“In addition, the airlines' operations have been considerably disrupted by 22 air traffic control strikes in Europe so far this year. This has impacted our passenger revenues.
"Our non-fuel unit costs fell 1.1% but are up 0.8% at constant currency, following the significant cost reductions achieved last year.
“In spite of the vast majority of our planned capital expenditure this year occurring in the first half, cash was €705 million higher than at the end of 2015.
"In the half year, we made an operating profit of €710 million before exceptional items compared to €555 million in 2015. Excluding Aer Lingus it was €668 million."


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