British Airways is back in the black as air travel takes flight

IAG roared back into the black last year as demand for air travel rebounded from its pandemic slump.

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

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

IAG said demand in Europe had recovered ‘to a greater extent’ than other parts of the world, with its capacity in the region inching ahead of pre-pandemic levels, boosted by strong passenger demand for destinations such as the Canary and Balearic Islands.

The group also said its capacity had surged over 2022 as most countries relaxed their Covid-19 travel restrictions, leaving airlines scrambling to get more planes back in the air to meet the demand from customers.

IAG reported its capacity had reached 87 per cent of 2019 levels in the final quarter of last year.

The group’s net debt declined to £9.2billion from £10bn after ballooning by over £3.5bn during the pandemic as it racked up losses of £9billion across 2020 and 2021.

But issues remain, especially jet fuel costs which rose sharply in 2022 and were 30 per cent higher than pre-pandemic levels as global oil prices surged following the outbreak of war in Ukraine.

The firm also refrained from reinstating its dividend despite the return to profit, defying speculation earlier this week from Heathrow boss John Holland-Kaye that the airline group could resume payments in its results.

But IAG remained optimistic and expects a bigger profit in 2023 of between £1.6billion and £2billion as air travel continued to recover and capacity improved.

Boss Luis Gallego also said the group was seeing ‘robust forward bookings’ for flights and planned for the company to return to ‘pre-Covid levels of profit within the next few years’. 

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

Gallego said the purchase would allow the group to grow its hub in Madrid as well as offer ‘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 unnerved investors and the shares dropped 6.5 per cent, or 10.68p, to 154.76p.

‘IAG has a major task in repairing its balance sheet after the pandemic tore through revenues and forced the group into substantial borrowings,’ said Richard Hunter, head of markets at Interactive Investor.

He also said ‘somewhat concerningly’ that IAG did not expect its debt to fall meaningfully by the end of this year, so investors would likely be waiting a while for dividends to resume.

Aside from the lingering effects of the pandemic, IAG and other travel firms are now battling with the cost of living squeeze as customers increasingly opt for cheaper trips or eschew travel altogether as they tighten their belts.

The ongoing pressure on the industry was laid bare last month when low-cost carrier FlyBe collapsed into administration.

This post first appeared on Dailymail.co.uk