British Airways Owner’s Revenue Growth Is Coming From a Surprising Place: Holidays

It’s been a tough couple of months for British Airways owner IAG.

Boosted by a successful acquisition of Irish carrier Aer Lingus, it was on track for a bumper year — and then Brexit happened.

IAG, which owns a collection of airlines across Europe, is still set to make a profit (around $2.7 billion), it just won’t be as big and it would have been had the UK not voted to leave the European Union, creating mass political and economic uncertainty.

The main casualty so far has been the weakening pound, which today IAG blamed for lower third quarter profit.

Still there were some bright spots in a couple of unexpected places, chief among them the performance of British Airways Holidays.

Selling holidays is not new for BA, it has been doing so for a considerable amount of time but it has quietly become a lucrative side business.

The company takes seats on flights and packages them up with hotels and car hire. Other airlines such as Virgin Atlantic and EasyJet do much the same.

IAG’s third quarter results note that while passenger revenue was pretty much flat and cargo revenue declined, what it calls other revenue, which includes BA Holidays was up by 14.3 percent to $1.3 billion (€1.2 billion) in the first nine months of its financial year.

“BA Holidays has performed well and it’s good for us to have that business in the group because it gives us a greater sense of some of the consumer trends ex-UK, in light of the sterling devaluation,” said IAG CEO Willie Walsh on an earnings call with analysts.

Both Aer Lingus and Iberia offer some form of holiday product but they don’t appear to be as slick as BA’s and Walsh believes there is an opportunity for other parts of the IAG family to learn from it.

“We’ve got quite a lot of expertise in that area that’s been built up over the years. The BA Holidays performance is very encouraging. We had done some work on it but it’s on a small scale and there is definitely an opportunity for us to expand that into other parts of the group, building on the expertise that we have at BA.”

Fortunately for IAG, it hasn’t seen a slowdown in bookings post Brexit, what it has noticed, however, is that while people are still going away, they are tending to go for shorter durations.

“If you think of the U.S., where the dollar clearly is much stronger versus the pound, Las Vegas is still doing very well,” Walsh said.

“So we haven’t seen evidence of people stopping. What they are doing is shortening their trip away so that trend was obvious during the third quarter and as we go through the fourth quarter that’s what they would expect to see.”