Aer Lingus owner scales back capacity growth plans

Aer Lingus owner, IAG, has stuck to its main long-term earnings and margin-growth targets, but scaled back its plans to expand capacity. This is a sign of the tough environment in which airlines are operating.

IAG — which also owns the British Airways, Iberia, Aer Lingus, and Vueling airlines — yesterday confirmed forecasts for average annual earnings per share growth of at least 12%, and an operating profit margin of 12%-15% for the 2016-2020 period.

Those are targets it first set out this time last year. The group did, however, trim its forecast for core earnings, saying it expected this to average €5.3bn per year, down from the €5.6bn it had previously said.

IAG has cautioned that currency effects would drag on its earnings this year, after the pound weakened 14% against the euro, and 16% against the dollar, since Britain voted to leave the EU in June.

The outlook for most European airlines has darkened this year. They face falling fares after carriers, particularly low-cost ones, put more seats on to the market to take advantage of low fuel prices and gain market share.

Britain’s Brexit vote, and the resulting uncertainty and currency moves, a series of attacks in Europe, plus depressed appetite for corporate travel, have all put the brakes on demand this year, prompting IAG to trim capacity and twice downgrade its 2016 profit forecast.

IAG lowered its 2016-2020 capacity growth plans, measured in available seat kilometres, to around 3% a year, compared to the 3%-4% previously targeted, and said it would invest less on capital expenditure each year.

The airline group also said it was focused on shareholder cash returns, highlighting its strong outlook for equity-free cash-flow targets and its strong balance sheet.

Cantor analyst, Robin Byde, said IAG’s key messages on long-term operating profit margins and free cash-generation are unchanged.