British Airways owner IAG posts record profits on travel boom

British Airways owner International Airlines Group has reported record annual profits as it cashed in on “sustained” demand for leisure travel at high prices, including from holidaymakers filling business and first class seats.

The airline group said on Thursday that operating profits more than doubled to €3.5bn last year, surpassing the previous record of €3.3bn it made in 2019.

The company, which owns a clutch of airlines including Spain’s Iberia and Ireland’s Aer Lingus, put the performance down to “strong and sustained demand for travel”, particularly from leisure travellers, and said it expected business to “continue to be robust” this year.

The return of business travel has been slower, reaching 70 per cent of 2019 levels by the start of this year, but was offset by high demand from tourists for premium seats.

IAG’s chief executive Luis Gallego said he was “optimistic” about this year. He added that prices were “holding up well”, and even ahead of last year on some routes, including the lucrative North Atlantic market between the US and Europe. 

The strong results came despite a poor performance from BA at London Heathrow, where just 60 per cent of flights departed or arrived within 15 minutes of their scheduled time last year.

IAG said BA was “still recovering its full operational capability” at Heathrow, but that performance had improved in the first two months of this year following “significant” investment.

BA is IAG’s profits engine and was responsible for €1.4bn in operating profit in 2023, but its recovery has lagged behind other airlines in the business.

The airline flew only 90 per cent of its pre-Covid flight schedules in 2023, in part because of the retirement of its large 747 jumbo jets during the pandemic.

IAG said it “recognised” the need to invest to “improve the customer experience” across its airlines and that non-fuel costs would rise “slightly” this year as a result of that spending.

BA is focused on investing in the rollout of its new business class seats, lounges, food and more modern IT systems, to avoid a repeat of the computer failures that have caused regular disruption in recent years.

Rival Air France-KLM also reported booming demand for travel on Thursday, but its shares fell nearly 10 per cent in morning trading after the company posted a €256mn fourth-quarter loss, which it blamed on higher costs and geopolitical uncertainty affecting some of its routes in Africa and the Middle East.

IAG’s operating profit in the fourth quarter rose from €477mn to €502mn. For the full year, its pre-tax profits increased from €415mn to €3.05bn, another record.

Airlines have profited from a boom in travel since the end of disruptions caused by Covid-19 restrictions, with passengers undeterred by high ticket prices. The high fares have allowed major airline groups to record strong profits while only slowly rebuilding their flying schedules.

IAG flew 95 per cent of its pre-pandemic capacity in 2023, while passenger revenue rose 33 per cent year on year to €25.8bn.

In contrast, capacity at low-cost airlines such as Ryanair and Wizz Air has been above 2019 levels as their business models rely on packing in passengers paying lower fares.

Investors are yet to fully buy into the recovery though, amid concerns that the high-fare environment will soften as airlines put more planes into the skies.

IAG shares are flat over the past 12 months, while those of lower-cost airlines that fly on point-to-point routes in Europe, including Ryanair and easyJet, have risen by double digits over the same period. IAG shares ticked up by less than 2 per cent in morning trading on Thursday.