British Airways Parent IAG Cuts Earnings Outlook
October 28 2016 - 3:40AM
Dow Jones News
LONDON—British Airways parent International Consolidated
Airlines Group SA Friday cut its earnings outlook further after
third-quarter operating profit fell 3.6%, weighed down by the sharp
drop in sterling after the U.K. voted to leave the European
Union.
Operating profit for the crucial July through September period
was €1.21 billion euros ($1.32 billion), with a €162 million
currency headwind in the quarter. The figure strips out some
nonoperating costs and taxes.
Net profit rose 9.9% to €930 million from €848 million. Sales in
the period declined 4% to €6.5 billion.
"While strong, these results were affected by a tough operating
environment with a very significant negative currency impact," IAG
Chief Executive Willie Walsh said.
IAG reports earnings in euros, but its British Airways unit that
generates most profit principally sells tickets in pounds which are
now worth less.
The airline group, which also includes Aer Lingus and Spanish
carriers Iberia and Vueling, cut its profit outlook for the year
following the referendum. The pound has depreciated further since
then against the dollar and the euro. Mr. Walsh said the guidance
in July was based on the prevailing exchange rates now changed.
IAG Friday said it would deliver a full-year operating profit of
€2.5 billion. It had already revised its outlook down to low
double-digit growth in its adjusted operating profit beyond the
€2.3 billion generated in 2015. IAG began the year expecting to
deliver an operating profit of about €3.2 billion
European airlines have faced a multitude of headwinds weighing
on earnings. Ticket prices are plummeting because of overcapacity,
terror attacks have spooked passengers and repeated
air-traffic-control strikes have led to thousands of flight
cancellations.
Mr. Walsh said trading conditions said the business conditions
were "tough," with low growth in Europe and weakness in markets
such as Brazil. Conditions are worse than expected a year ago, he
said, and had not improved since the Brexit vote.
The impact from air-traffic control strikes this year has been
more pronounced than in prior years, he added.
Britain's June 23 vote to leave the EU has led the country's
currency fall to more than 30-year lows. IAG isn't the only airline
to suffer. Ryanair Holdings PLC, Europe's biggest discount airline,
this month said its profit in the fiscal year ending March 31,
2017, would advance more slowly than expected because of the
currency headwind.
Mr. Walsh, an Irishman who said he personally had opposed
Britain leaving the EU, kept the carrier from joining others in
lobbying to retain membership in the trade bloc, arguing an exit
wouldn't materially impact the airline.
British Airways may raise ticket prices to offset sterling's
weakness, Mr. Walsh said. However, he added that the currency
weakness also have given the carrier a competitive edge on the
important trans-Atlantic market because many of its costs have
effectively fallen compared with U.S. rivals.
IAG on Thursday said it would pay an interim dividend of €0.11
per share, a 10% increase over the prior-year period, which it
expects to be about half of the full-year payout.
IAG also said British Airways agreed with pension trustees a
technical deficit of £ 2.8 billion ($3.4 billion), only slightly
higher than the early projection. Annual payments are little
changed.
Write to Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
October 28, 2016 03:25 ET (07:25 GMT)
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