Major airline groups including Aer Lingus owner IAG have reported strong earnings for the first half of the year, boosting faith in a sector which is finally taking off for investors.
IAG, led by Willie Walsh, said its operating profit for the six months was €975m, an increase of €265m from last year. Its shares have climbed 35% since the start of the year. The group, which owns British Airways, Iberia, Vueling, as well as Aer Lingus, is valued at £12.3bn (€13.8bn).
Also reporting a strong performance was Air France-KLM, with a second-quarter operating profit of €496m. Its shares have soared 125% this year, valuing the airline at €3.5bn.
The share performances of the major airline groups this year have confounded tradition, with the industry historically being seen as a sure fire way for investors to lose money because of its cyclical nature.
Legendary American investor Warren Buffett’s Berkshire Hathaway recently took stakes in American, Delta, United and Southwest Airlines, surprising analysts who have traditionally insisted there have been poor returns since commercial flight began.
Aer Lingus reported a profit of €59m in the first six months compared with €42m a year earlier. British Airways reported its profit at €741m compared with €631m, IAG said. Aer Lingus produced a “good financial performance in the first half of 2017”, bolstered by IAG investing in new aircraft for its transatlantic routes, Aer Lingus said. However, Mr Walsh said a power failure at Heathrow which had affected 75,000 British Airways passengers during the May bank holiday weekend cost it €65m. Air France-KLM shares gained slightly after a landmark deal that saw Delta Air Lines and China Eastern Airlines each agree to buy 10% stakes in the Paris-based business.
Air France-KLM, Delta Air Lines and Virgin Atlantic also agreed a so-called ‘put’ option with Virgin Group that allows Virgin Atlantic to remain in majority UK ownership in the event of a hard Brexit. Richard Branson’s Virgin Group said it would sell a 31% stake in Virgin to Air France-KLM, reducing its stake to 20%. US carrier Delta remains the largest shareholder with a 49% stake. Virgin Atlantic must be majority owned by EU investors to retain its operating rights as a European carrier, but it is not clear what ownership rules will look like after Britain’s exit from the EU. “The put option means we can easily, immediately restore UK citizenship into the stake of Virgin Atlantic if it was necessary or mandatory after Brexit,” Air-France KLM said.
Additional reporting Reuters and Bloomberg
© Irish Examiner Ltd. All rights reserved