British Airways aircraft at Heathrow Airport, in west London, on Feb. 23, 2018.HANNAH MCKAY/Reuters
British Airways-owner IAG and Air France-KLM shares fell sharply on Friday, with Air France-KLM reaching all-time lows, as investors feared weak outlooks despite record quarterly profits.
Europe’s airlines are expected to report strong quarterly numbers as consumers have kept traveling despite a cost of living crisis, but the outlook is clouded by rising oil prices due to conflict in the Middle East and risks of recession.
“Concerns dominate sentiment,” said Neil Glynn, managing director of AIR Control Tower, an airline research platform.
IAG reported a 39 per cent year-on-year rise in quarterly operating profit before exceptional items to €1.7-billion ($1.8-billion), while Air France-KLM marked a 31 per cent increase to €1.3-billion.
IAG topped the €1.55-billion expected by analysts in a company-compiled poll while Air France-KLM slightly lagged an analysts’ consensus forecast of 1.37 billion.
“During the third quarter we saw sustained strong demand across all our routes, in particular the North and South Atlantic and in all leisure destinations around Europe,” said IAG CEO Luis Gallego.
IAG reported an operating margin of 20.2 per cent, up from 16.6 per cent a year earlier, adding its robust results would allow it to pay down debt, which stood at €8-billion versus €11.1-billion a year earlier.
Analysts said that profit beats were not enough to sustain the groups’ share prices as the outlook continued to be unclear.
While IAG shares were up 2.6 per cent when markets first opened, they dropped by almost 3 per cent later into the morning.
Air France-KLM shares fell by almost 6 per cent with analysts citing a lagging booking curve, a lack of guidance on profitability for the year and a slight profit miss.
Air France shares trade at a 12-month forward price-to-earnings ratio of 3, while IAG trades at 4, both at a discount to rivals easyJet and Ryanair and to the global airline index.
IAG’s share price took a hit earlier this year over worries surrounding its debt.
But both groups said they were well prepared to handle volatility with jet fuel prices thanks to hedging, while other carriers have warned rising fuel costs could drive up ticket prices or dampen future earnings.