British Airways owner IAG lowers profit outlook amid Brexit impact

Shares in International Consolidated Airlines Group (IAG) fell over 1.5% early on Friday (29 July), after the owner of British Airways posted a lower-than-expected operating profit in the second quarter of its financial year.

In the three months to 30 June, the FTSE 100-listed group reported an underlying operating profit of €555m (£466.3m, $615.9m), 4% higher year-on-year but short of analysts' expectations for a €562m figure.

Operating profit before exceptional items, meanwhile, rose from €555m to €710m in the six months to the end of June, as revenue rose 4.1% year-on-year to €10.8bn, despite passenger unit revenue per available seat kilometres declining 7.2% from the corresponding period last year.

Meanwhile, fuel unit costs fell 31.2%, or 29.3% on a constant currency basis.

However, the uncertainty generated by Britain's vote to leave the European Union, a weaker pound and the recent terrorist attacks have led the airline giant to lower its full-year forecast. In February, IAG, which also owns Aer Lingus and Iberia, had forecast its profit for the year would rise by over €900m, which would have represented a 40% year-on-year increase.

Following the Brexit vote, however, the company said it expects its annual profit to rise by a "low double digit", citing a weaker pound and a lack of consumer confidence as the main reasons behind its revised forecast.

Group chief executive Willie Walsh explained the weak pound had a negative currency impact of €148m on IAG's performance in the quarter, adding the group had faced a host of other disruptions.

"Numerous external factors affected our airlines including the impact of terrorism, uncertainty around the UK's EU referendum and Spain's political situation and increased weakness in Latin American economies," he said.

"This led to a softer than expected trading environment, especially in June. In addition, the airlines' operations have been considerably disrupted by 22 air traffic control strikes in Europe so far this year. This has impacted our passenger revenues."

IAG, whose shares have fallen by approximately a third since the beginning of the year, is the latest in a list of airline stocks to cite post-Brexit uncertainty and terrorist attacks.

On Thursday (28 July), Thomas Cook revealed it had sunk to a quarterly loss after revenue slumped 8% year-on-year, as the group admitted it will miss annual profit targets after attacks in Turkey hit business.

Ryanair has however warned the uncertainty triggered by the Brexit vote could force the carrier to revise its guidance later this year, while Lufthansa slashed its profit forecast for this year amid a sharp drop in long haul bookings to Europe. The German carrier blamed "repeated terrorist attacks in Europe" and greater political and economic uncertainty in the region for the fall in demand.

The concerns were echoed by Air France-KLM, which admitted it faces an uncertain medium-term outlook after recent terror attacks in Europe affected sales in the second quarter.