If there is going to be a capacity war over European skies, IAG is probably in a stronger position than its rival carrier groups. And with oil prices rising again, we could see more airline business casualties in 2018.
British Airways owner IAG SA is following European rivals in a capacity splurge led by an expansion of its low-cost Level and Aer Lingus long-haul divisions, while going on the offensive in Europe.
The shares fell as much as 3.9 percent in London, mirroring the reaction when rival Air France similarly said this month that it would charge ahead in the face of rising competition. IAG will increase capacity 6.7 percent in 2018, the company said in a statement Friday, as Level adds two planes and flights to North America from Paris, and Dublin-based Aer Lingus is rapidly expanding across the Atlantic.
IAG is responding to the growth of long-haul discounters led by Norwegian Air Shuttle ASA, while adding European airport slots from failed U.K. rival Monarch Airlines. Ryanair Holdings Plc, Europe’s biggest discount carrier, said earlier this month it was girding for a price war this summer as airlines look to continue a growth spree spurred by lower fuel costs.
“We’re very focused on growing where it makes sense for us,” Chief Executive Officer Willie Walsh said on a call with journalists. Asked whether IAG was deploying too much capacity in a competitive market with rising oil prices he answered: “Clearly not.”
Earlier this year, Walsh narrowly failed in a bid for Austria’s Niki, an approach that has convinced management that new routes in central Europe would be viable even without the acquisition.
IAG predicted higher earnings this year as prices gain, costs fall and the group expands its new Level low-cost long-haul division. Walsh announced a further share-buyback program totaling 500 million euros ($615 billion) and said his “confidence in IAG’s future remains undaunted.”
IAG shares traded 3.4 percent lower at 601.6 pence 8:37 a.m. in London. The company reported a 5.6 percent decline in fourth-quarter earnings as it paid out more in employee bonuses. Unit revenue, an indicator of prices, should carry on gaining after improvements in both fares and occupancy levels spurred a 1.5 percent gain last year, it IAG said.
Operating profit excluding one-time items rose 19 percent to 3.02 billion euros. The company had forecast a figure of about 3 billion euros, and analysts had predicted 3.05 billion euros, based on 17 estimates.
©2018 Bloomberg L.P.
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Photo credit: Willie Walsh, IAG CEO. The airline group will add capacity in 2018 as a way to take on competitors. Bloomberg