IAG Profits Soar as Leisure Travel Boosts Bottom Line

The owner of some of Europe’s best-known airlines more than doubled its operating profit last year. International Consolidated Airlines Group (IAG) – the parent company behind brands such as British Airways and Iberia – posted results comfortably ahead of market expectations.

Profit excluding exceptional items was €3.51 billion ($3.81bn) in 2023. This compares with €1.25 billion ($1.36bn) a year earlier and even beats the €3.25 billion ($3.53bn) recorded in 2019. The results suggest sustained strength, as opposed to an off-trend blip.

In 2023, capacity at IAG was 95.7% of pre-pandemic levels. This rose even further in the final quarter to reach 98.6%. Additional growth of around 7% is forecast this year.

Despite economic and geopolitical pressures, IAG said leisure demand was particularly strong. While this segment is traditionally less profitable than corporate travel, the industry is seeing more leisure passengers trade up to more expensive cabins. The company said ‘premium leisure’ is continuing to “perform very well.”

Strong Booking Visibility

IAG reported that it has sold 92% of seats for the first quarter of 2024, and 62% for the first half of the year – figures which are ahead of its comparable position last year. It said the numbers were “underpinned by robust and sustainable demand for travel.”

IAG has benefited from robust transatlantic demand on multiple fronts. British Airways is one of the biggest players in the North Atlantic market, with hundreds of flights each week. It also owns Irish flag carrier Aer Lingus which flies to 15 destinations in the United States.

By contrast, Iberia is especially strong on routes to and from Central and South America – a region IAG says is “attractive and growing.” The airline’s Madrid hub boasts more nonstop connections to the continent than any other European airport. 

In separate developments, the status of IAG’s planned €400 million acquisition of Air Europa remains fluid. The group, which already owns 20% of the Spanish airline, is facing obstacles with European Commission antitrust regulators.

If approved, the deal would give IAG increased dominance for travel between Madrid and Latin America. A European competition investigation is currently underway, with a result expected by June.

Loyalty is Big Business

Although IAG is best known for its big-name airline brands, its loyalty program is also a key driver of profitability. Described by the company as a “highly cash-generative, high margin” business, IAG Loyalty had a strong 2023. 

The firm behind the Avios platform saw a 17% increase in new members, with profits also rising by 17% to £280 million ($354.9m). Avios is used by British Airways, Iberia, Aer Lingus, Vueling, Qatar Airways and Finnair.

IAG is not alone in identifying big potential in frequent flier and other spin-off subsidiaries. For example, American Airlines’ AAdvantage program and United Airlines’ MileagePlus program are valued at $24 billion and $22 billion, respectively. 

Despite the upbeat results, and “strong free cash flow generation,” IAG did not declare a dividend for shareholders. 

Looking ahead, it reports a “positive outlook for 2024.” The company expects its non-fuel costs to rise slightly this year, attributing much of this to investments in an ongoing transformation program.