Aer Lingus' profits rise on increased capacity

Cornelia Mascio
Febbraio 23, 2018

British Airways owner IAG SA is following European rivals in a capacity splurge led by an expansion of its low-priced Level and Aer Lingus long-haul divisions, while going on the offensive in Europe.

The buyback and dividend increase were not enough to tempt investors and the shares fell 3.3% to 602p in early trade on the London Stock Exchange.

"IAG's outlook for a positive unit revenue environment in 2018 runs counter to our own analysis of the current sector outlook", Bernstein analyst Daniel Roeska said.

IAG is responding to the growth of long-haul discounters led by Norwegian Air Shuttle ASA, while adding European airport slots from failed United Kingdom rival Monarch Airlines.

But the last three months of the year were worse than expected, and plans to expand capacity by 6.7% came amid worries that airlines are growing too quickly and will struggle with costs as rising oil prices boost their jet fuel bills. "We'll make a decision on that in the next couple of weeks", he said. The newswire also quoted Liberum as commenting that "relatively robust demand, especially from corporate customers, would seem to give headroom to recover at least some of the higher costs through the revenue line".

Following the results, the airline group said it would launch a €500 million share-buyback program and declared a dividend of 14.5 cents a share.

IAG shares were down 3.5% on Friday at 600.70 pence each. The company reported a 5.6 percent decline in fourth-quarter earnings as it paid out more in employee bonuses.

The airline said that while its passenger revenues increased previous year, they were lower on a unit basis due to the airline's significant capacity growth and competitive pressures. Operating profit before exceptional items was 3.01 billion euros compared to 2.53 billion euros, up 18.9 percent. Analysts at Barclays had expected revenue for 2017 of EUR22.94 billion.

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