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DALLAS — According to its 2023 full-year financial report, International Airlines Group (IAG) experienced a significant increase in operating profit last year, driven by strong and sustainable demand for travel and ongoing investments in the Group's transformation efforts to drive long-term earnings growth.
First, the operating profit for the full year of 2023 was €3,507 million, surpassing the previous year's figure of €1,247 million and exceeding the 2019 figure of €3,253 million. The operating margin also saw a substantial improvement, reaching 11.9% compared to 5.4% in 2022.
Additionally, the company generated a solid free cash flow of €1.3 billion, resulting in a robust balance sheet with a net debt to EBITDA ratio of 1.7 times, below the target of 1.8 times. Looking ahead to 2024, IAG is optimistic, expecting significant free cash flow generation, disciplined capital allocation, and a focus on sustainable shareholder value creation and cash returns.
Lastly, the report highlights that IAG has committed to one-third of its sustainable aviation fuel target for 2030.
Financial Highlights for 2023
In 2023, IAG achieved significant milestones in its financial performance. These highlights include:
- Capacity restoration: The company restored 95.7% of its 2019 capacity, measured in available seat kilometers (ASKs). In the fourth quarter, capacity reached 98.6% of the 2019 level.
- Passenger unit revenue: The passenger unit revenue for the year increased by 8.2% compared to 2022. A strong recovery in leisure traffic drove this growth, while business traffic showed a slower recovery. The premium leisure segment performed exceptionally well.
- Cost optimization: Non-fuel unit costs decreased by 4.4% compared to 2022. This reduction was achieved through increased passenger capacity and transformation initiatives, which offset inflation and investments in customer offerings and systems.
- Fuel costs: Fuel unit costs increased by 0.7% compared to 2022. Effective fuel prices remained relatively stable after hedging, and the company's investment in more fuel-efficient aircraft partially offset the increased costs of Emissions Trading Schemes.
- Profit after tax: The company reported a profit after tax of €2,655 million for the year, a significant improvement compared to the previous year's figure of €431 million.
IAG's Atlantic Growth, Loyalty Business
Notable strategic highlights include a capacity growth of 22.6% in 2023, particularly in the North Atlantic and South Atlantic markets. Revenue and cost transformation initiatives have also contributed to improving the customer proposition. The Spanish businesses performed well, delivering €1.4 billion operating profit in 2023.
IAG and its joint business partners have a significant market share of 45% on the North Atlantic market. This market represents 32% of IAG's total capacity by ASK (Available Seat Kilometers). They serve North America 150 times each day to 29 destinations, which is 30% more than their nearest competitor. Below is a summary of each airline's unique advantages and plans:
Aer Lingus:
- Aer Lingus has solid cultural and geographic links to its US long-haul market.
- They have US-border pre-clearance at Dublin airport.
- In 2023, they reopened Hartford and launched Cleveland.
- In 2024, they plan to expand their network to 21 routes to the US and Canada, including restarting Minneapolis and adding a new route to Denver.
British Airways:
- British Airways is the market leader to North America from London, focusing on a "highly valuable" and mainly point-to-point market.
- In 2023, they added a new route to Cincinnati and returned to 100% of their pre-COVID-19 total capacity.
- In 2024, they plan to focus on frequencies and adding premium seats as they rebuild their pre-COVID-19 premium and non-premium North Atlantic capacity.
Iberia:
- Iberia serves destinations in North America with solid commercial or cultural links to Spain.
- In 2023, they consolidated new routes to Dallas and Washington, launched in 2022.
- In 2024, they plan to grow their presence in Los Angeles and further invest in route maturity by reinforcing their presence in select US markets.
LEVEL:
- LEVEL is experiencing strong growth to Boston and New York as they develop the long-haul, low-cost model from the valuable Barcelona market.
- In 2024, they will add a new route to Miami.
- The delivery of three Airbus A321 XLRs in 2024 will allow them to create a competitive advantage over their European peers by using their geographic advantage to develop their network at a low cost.
Moving on, the IAG Loyalty business, known for its high cash generation and margins, saw profits increase by 17% to £280 million and gained 4.9 million new members. In the fourth quarter of 2023, the operating profit before exceptional items was €502 million. The company also prioritized investing in its workforce, hiring 13,000 new colleagues in 2023.
Looking ahead to the future, the company has a positive outlook and expects continued robust demand, particularly in the leisure travel segment. Key points regarding the company's outlook are as follows:
2024 Outlook
- Strong booking performance: The company is already 92% booked for the first quarter of 2024 and 62% booked for the first half of the year, surpassing the previous year's figures.
- Market expansion: The company plans to invest in its core markets and strengthen its global leadership positions. It aims to grow its capacity (ASK) by approximately 7% in 2024. British Airways will focus on rebuilding its pre-COVID-19 long-haul capacity, while Iberia will target efficient growth in the Latin American market, which is both attractive and expanding.
- Cost expectations: Non-fuel unit costs are projected to increase slightly in 2024 as the company continues to invest in its businesses. However, the ongoing transformation program will help offset the impact of inflation and enhance the customer proposition, ultimately supporting the delivery of world-class margins and returns over the medium term.
- Free cash flow generation: The company anticipates generating significant free cash flow throughout the year. This projection does not include the benefits of any leasing transactions and accounts for no additional pension or substantial debt maturity repayments. It also considers capital expenditure related to the company's investment plans, estimated to be around €3.7 billion in 2024.
Comments from IAG CEO, Senior Management Changes
Luis Gallego, the CEO of IAG, expressed satisfaction with the company's performance in 2023, highlighting the doubling of operating margin and profits compared to the previous year. Looking forward to 2024, the company will focus on executing its strategy, which includes strengthening its core airline businesses, developing IAG Loyalty and other asset-light growth opportunities, and operating within a solid financial and sustainability framework.
The company's global presence and commitment to brand investment, customer experience improvement, and sustainable growth position it well for the future. Finally, Gallego thanked all the teams across the Group for their dedication to delivering the company's transformation plan.
A second press release from IAG announced upcoming changes to its senior management team to take effect from April 1, 2024. The following appointments have been made:
- Marco Sansavini, currently the CEO of Vueling, will take on the role of CEO and Chairman of Iberia.
- Fernando Candela, who has been serving as interim CEO of Iberia since May 2023, will step down from his position. However, he will continue to hold the position of CEO at Level.
- Carolina Martinoli, currently the Chief People, Corporate Affairs, and Sustainability Officer at IAG, will assume the role of CEO and Chair of Vueling.
The Group says these changes aim to bring fresh perspectives and leadership to the respective airlines within the IAG group. The new appointments will come into effect at the beginning of April 2024.
Featured image: Air Europa, Iberia Combo Shot (IAG). Photo: Adrian Nowakowsky/Airways
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