British Airways owner IAG's third quarter profit to fly higher as investors keep a close eye on cost control

Rebecca Smith
Investors are interested in how the firm's non-fuel operating costs are shaping up
Investors are interested in how the firm's non-fuel operating costs are shaping up (Source: Getty)

All eyes have been on the aviation sector of late, what with Ryanair's mass flight cancellations, Alitalia and Air Berlin entering administration, and Monarch Airlines' collapse earlier this month.

This week, attention turns to British Airways owner IAG which has third quarter results out on Friday. Analyst consensus is that there will be a rise on the €1.25bn operating profit reported for the same period last year, up to €1.4bn.

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This time last year, the company cited weakness in the pound and air traffic control strikes contributing to a dip in profit, with chief executive Willie Walsh noting "a tough operating environment".

At present, IAG has avoided much of the turbulence that has buffeted many in the sector. Nicholas Hyett, equity analyst at Hargreaves Lansdown said IAG's "exposure to long-haul destinations and focus on international business travel have so far helped it soar above the dogfight".

He is expecting cost control to take centre stage during the firm's third quarter results, with keeping a tight grip on costs a "key theme at present".

"Cheap fuel is providing a decent tailwind, but of course the oil price is out of IAG's hands," Hyett said. "This means investors' attention is more likely going to be focused on non-fuel operating costs. At the half-year stage, constant currency non-fuel costs increased 2.5 per cent, although that did include the financial impact of the power failure which affected British Airways' customers."

In May, British Airways battled an IT meltdown leading it to cancel a raft of flights from London's Heathrow and Gatwick airports, disrupting around 75,000 passengers. After an initial assessment, IAG boss Walsh said the gross cost of the disruption was around £80m.

The aviation sector has witnessed a flurry of activity in recent months, after a hefty price war took its toll on Monarch. The airline ceased trading at the beginning of the month, sparking a mass repatriation programme to bring 110,000 people back to the UK.

The airline's collapse has also meant it leaves a number of slots, across London Luton, Birmingham, Manchester, London Gatwick and Leeds Bradford, that rivals will be eyeing with interest.

IAG chief executive Walsh said earlier this month: "With Monarch, I think everybody's interested in slots at Gatwick, and that would principally be our interest as well."

Read more: British Airways owner IAG eyeing collapsed Monarch's Gatwick slots

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