Hot Features
Premium
Level up your trading with our powerful tools and real-time insights all in one place.
International Consolidated Airlines Group (LSE:IAG) share price has been escalating throughout the day and is currently up 16.80 pence to 313.90. That’s a 5.7% increase on the day, an 18.7% increase on the month, a 49.4% increase since the beginning of 2013, and a 99% increase over the last 12 months. Today’s change in share price comes following the IAG’s earnings report for the first half of 2013.
I would call that “Impressive.” CEO Willie Walsh called it “Positive results.” Way to keep a stiff upper lip, Willie.
IAG is the parent company of British Airways, Iberia Airlines, and Vueling Airlines. Enthusiasm was not based upon the full half-year results so much as it was on the second quarter. The group lost €33 million over the six months ending 30 June. However, the company’s Transformation Plan appears to be generating expected results as a strong Q2 bolstered the overall numbers by returning an operating profit of €245 million in stark contrast to a €4 million loss in Q2 2012. In fact, the H1 operating loss was markedly improved versus H1 2012 during which period the company lost €253 million. A little bit of simple arithmetic tells us that is a €220 million, 87% improvement.
Walsh described the company’s performance saying, “Several factors have contributed to this improvement. Firstly, the benefits of Iberia’s restructuring are beginning to show. Having reduced capacity at Iberia in the first quarter, costs began to be taken out in the second quarter following the implementation of the mediator’s proposal. Nearly 1,700 employees have left the airline so far with remaining staff taking salary reductions of 18 per cent for flight and cabin crew and 11 per cent for all other employees. This is the first step in the restructuring but it is already bearing fruit with Iberia’s losses down from EUR93 million last year to EUR35 million reversing the negative trend of the last 11 quarters.”
This was not a big surprise. Iberia was an airline in big trouble. The British Airways – IAG plan from the beginning was to be Iberia’s saviour whilst utilizing its routes to expand its reach. ADVFN reported in November 2012 that the condition of Iberia Airlines had been variously described by phrases like “record losses”, “financial decline”, “fight for survival”, “tough decisions”, “radical action”, “systemic problems”, “critical” and “time is not on our side.” At that time Iberia’s CEO, Rafael Sánchez-Lozano said of the airline that “Iberia is in a fight for survival. We have to make tough decisions now. Unless we take radical action to introduce permanent structural change, the future is bleak.”
In my humble opinion, one of the most important items in today’s release was not the numbers themselves, but a reminder of the company’s strategic plan. “The focus during the first six months at British Airways continued to be sustainable yield and unit revenue improvements with restrained capacity growth to match market demands. At Iberia the focus for the first six months has been the implementation of the Transformation Plan to improve profitability, reducing capacity by 13.0 per cent, and suspending loss making routes and frequencies.”
IAG experienced a number of exceptional costs during the period as a result of the Transformation Plan at Iberia and the acquisition of Vueling. However, the group has managed to increase its cash during the period, largely due the successful issue of a €390 million convertible bond and the addition of cash holdings obtained through the acquisition of Vueling. Total cash held as of 30 June was €3,627 million.
I love to watch well-managed companies work. One thing that the financial crisis of 2008-2009 has done is that it has compelled many companies to operate much leaner and more efficiently. It appears that we are just beginning to see the positive results appear in nearly every sector. IAG is proving that excellent management precedes exceptional results.
