British Airways-owner International Consolidated Airlines (IAG) jumps 3.7% to 405.2p on a strong set of third quarter results with operating profit of €900 million beating the same period last year by €210 million. A strong summer performance saw revenue for the quarter rise 8.5% to €5.86 billion as the group continued to drive down costs with non-fuel unit costs down 4.5%, but an even bigger cut to fuel costs of 7.5% thanks to falling oil prices.
Looking to individual divisions, British Airways made an operating profit of €607 million, compared to €477 million last year, while Iberia's operating profit increased to €162 million from €74 million last year. Low-cost carrier Vueling continued to grow, developing new bases in Italy and Belgium, with an operating profit of €140 million compared to €139 million last year.
But it isn't just past performance that's appealing to the markets. The £7.9 billion cap's upbeat full-year outlook will doubtless have cheered investors. For the full year 2014, IAG expects to produce an improvement in operating profit before exceptional items in the range of €550 million to €600 million, from a base of €770 million in 2013. This, according to Stephen Furlong at Davy Research, implies full year 2014 guidance of €1,320 million to €1,370 million.
Cantor Fitzgerald analyst Robin Byde maintains that 'this upgrade is being driven by strong trading at BA’s Trans-Atlantic operations, strong growth in premium cabin and lower fuel costs.'
Income investors should also take heart from the fact that IAG has been consulting investors on dividend policy, which it is expected to unveil at its capital markets day on 7 November. A resumption of the payout would mark the group's first dividend since its creation through the merger of British Airways and Iberia in 2011.