British Airways is back in the black as air traffic soars

IAG returned to the black last year as demand for air travel recovered from its pandemic slump.

The group, which also owns British Airways, Aer Lingus and Iberia, reported a profit of £1.1bn for 2022, up from a loss of £2.4bn in 2021, as its £7.5bn revenue increased more than doubled to £20 billion.

The results are another boon for British industry and come just a day after jet engine maker Rolls-Royce reported a 57 per cent rise in profits to £652m, while defense giant BAE, which makes parts for the Eurofighter Typhoon plane, also reported one Profits up 5.5 per cent to £2.48 billion.

IAG said demand in Europe has recovered “to a greater extent” than other parts of the world, with capacity in the region topping pre-pandemic levels, boosted by strong passenger demand to destinations such as the Canary and Balearic Islands became.

The group also said its capacity had increased throughout 2022 as most countries eased their Covid-19 travel restrictions and airlines had to scramble to get more planes back in the air to meet customer demand .

IAG reported that its capacity reached 87 percent of 2019 levels in the last quarter of last year.

The group’s net debt fell from £10bn to £9.2bn after rising by over £3.5bn during the pandemic as it posted losses of £9bn in 2020 and 2021 .

However, problems remain, notably the cost of kerosene, which rose sharply in 2022 and was 30 percent above pre-pandemic levels as global oil prices soared following the outbreak of war in Ukraine.

The company also refrained from reintroducing its dividend despite returning to profitability, and earlier this week defied speculation from Heathrow boss John Holland-Kaye that the airline group might resume payments in its results.

However, IAG remained optimistic and expects a bigger profit of between £1.6 billion and £2 billion in 2023 as air traffic continues to recover and capacity improves.

Boss Luis Gallego also said the group sees “robust advance bookings” for flights and plans for the company to return to “pre-Covid profit levels” in the next few years.

In a separate announcement, the group revealed plans to buy the 80 per cent stake in Spanish airline Air Europa it did not already own for £353million in cash.

Gallego said the purchase would allow the group to expand its Madrid center and “provide a gateway to Latin America and beyond, with benefits for customers, employees and shareholders.” But the lack of a dividend and the large debt pile unsettled investors and shares fell 6.5 percent or 10.68 pence to 154.76 pence.

“IAG has a big job repairing its balance sheet after the pandemic eroded revenue and forced the group to take on significant borrowing,” said Richard Hunter, Interactive Investor’s head of markets.

He also said “somewhat worryingly” that IAG didn’t expect its debt to decrease significantly by the end of this year, so investors would likely wait a while for dividends to resume.

Aside from the ongoing impact of the pandemic, IAG and other travel companies are now grappling with cost-of-living pressures as customers increasingly opt for cheaper travel or forgo travel altogether as they tighten their belts.

The ongoing pressure on the industry was exposed last month when low-cost airline FlyBe broke into administration.