IAG shrugs off challenges and sticks to margin growth targets

Airline group forecasts 12% earnings growth despite low-cost carrier seat increase

Aer Lingus’s owner International Airlines Group (IAG) stuck to its long-term earnings and margin growth targets, shrugging off a deterioration in the travel environment this year, and indicating that the outlook for shareholder returns was positive.

For the 2016-2020 period, IAG said it was still forecasting average annual earnings growth of at least 12 per cent and an operating profit margin of 12 to 15 per cent – keeping the targets it announced this time last year.

That comes despite a worsening outlook for airlines.

Britain’s vote in June to leave the EU and the resulting uncertainty and currency moves, combined with a series of attacks in Europe, plus depressed appetite for corporate travel, have all put the brakes on demand this year, prompting IAG to trim capacity and downgrade its profit forecast.


Balance sheet

Additionally, IAG, along with rival European airlines, is grappling with falling fares as carriers, especially low-cost ones, put more seats onto the market to try to take advantage of low fuel prices and gain market share.

But the airline group said it was focused on shareholder cash returns, highlighting its strong outlook for equity free cash flow targets and its strong balance sheet.

The group, which also owns Iberia, Vueling and British Airways airlines, nudged down its forecasts for yearly capital expenditure and said it would grow capacity, measured by available seat kilometres, at around 3 per cent a year, slightly down on the 3 per cent to 4 per cent previously targeted.

IAG’s shares have lost over a quarter of their value this year, lagging Britain’s bluechip index which is up 9 per cent.

– Reuters