IAG: Superior returns but
unappreciated — March 2019

Annual results for 2018 from IAG showed another excellent year. Each of its operating airline improved in key performance indicators. At the Group level it exceeded its long term targets for margins and returns on invested capital. It achieved investment grade rating from the credit agencies. And it has increased its final dividend payout for the year and announced a special dividend. But the share price is 25% below its peak in June 2018. Are the market’s perception of clouds on the horizon real?

For the full year 2018, IAG generated a 7% increase in revenues to €24.4bn, an underlying operating profit of €3.23bn up by 9.5% year-on-year, and reported net profits of €2.9bn up by 45%. This resulted from an increase in capacity of 6%, demand of 7% and a growth in unit revenues of 0.1%. Fuel costs were up by 14% overall, but on a like-for-like basis unit costs fell by 1.9% over the year. The group is proud to note that ex-fuel unit costs have fallen by 11% in total since the formation of the group in 2011, and it is targeting a further 5% reduction by 2023.