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British Airways owner IAG and Air France-KLM became the latest airline groups to benefit from booming demand for leisure travel, as they reported record profits over the summer.
IAG on Friday reported a 43 per cent increase in third-quarter operating profit before exceptional items to €1.75bn, its second consecutive quarter of record results.
“During the third quarter we saw sustained strong demand across all our routes,” said IAG chief executive Luis Gallego.
The airline group, which also owns Aer Lingus and Iberia, reported particularly strong appetite for travel across the Atlantic and to leisure destinations in Europe.
Rival Air France-KLM said its operating profit reached a record €1.34bn in the third quarter, up 31 per cent from a year earlier, driven by strong summer bookings.
The results from two of Europe’s largest aviation groups underline the industry’s rapid recovery from the disruption of the Covid-19 pandemic. Low-cost airline easyJet has said it expects to report record profits over the summer, while London’s Heathrow airport raised its passenger forecasts this week.
However, the rise in the price of oil and growing geopolitical uncertainty have raised questions over the durability of the recovery, and airline shares have fallen since the summer.
Gallego said bookings for the rest of this year were “positive”, and early signs for 2024 were “in line” with expectations.
“We are pleased how the business is performing . . . [but] we are very mindful of the geopolitical and macroeconomic uncertainty.”
Both IAG and Air France said there had not been any significant hit to bookings from the tensions in the Middle East.
But IAG’s chief financial officer Nicholas Cadbury said strengthening the company’s balance sheet would be a “priority” over the next year, at the expense of shareholder payouts, in part because of the uncertain outlook. Net debt fell 22 per cent from €10.4bn to €8bn in the first nine months of the year.
Profits at airlines across Europe have been boosted by customers’ willingness to pay high ticket prices for travel. IAG said passenger unit revenue — a measure of average revenues per kilometre flown, which is seen by some people as a proxy for ticket prices — was 25 per cent higher than in 2019.
That allowed the airline to report higher profits despite operating a smaller flight network than before the pandemic, which the company put down to the retirement of its high-capacity jumbo jets and the slow return of travel to Asia. The group expects to fly 96 per cent of 2019 capacity this year.
Cadbury said BA was being held back by “not having enough aircraft” following the downsizing of its fleet during the pandemic, but that IAG was investing €4bn in new planes and refurbished cabins.
Air France-KLM, which recently said it would take a 20 per cent stake in Scandinavian airline SAS, maintained its capacity outlook for the year at 95 per cent of 2019 levels.
Operating profits at Air France-KLM were slightly lower than the €1.37bn consensus forecast cited by analysts at Bernstein. But costs were better than expected, Bernstein added, as airlines countered rising jet fuel prices with hedging.
European airlines are still not flying as much as they had in the past to China after the country reopened following Covid lockdowns.
But Air France-KLM chief executive Ben Smith said fears western carriers would lose out to Chinese airlines as travel routes resume — in part because Chinese flights are not forced to bypass Russian airspace like European ones — had not materialised.
Business passengers in particular had continued to stick to Air France-KLM routes, he added.
“Our corporate accounts and frequent flyers do fly to China and there’s zero pressure on those to fly over Russia. They’re either not allowed by insurance policies in their companies or not comfortable,” Smith told reporters.
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