Friday 24 February 2017 9:12 am

British Airways owner IAG has revealed a share buyback programme after strong performance in 2016

British Airways and Aer Lingus owner International Airlines Group (IAG) revealed it will increase cash returns to investors with a share buyback programme after profit rose in line with expectations.

The figures

For the year to the end of December, the airline group's operating profit rose 8.6 per cent to €2.54bn (£2.15bn). But total revenue fell 1.3 per cent to €22.57bn as passenger unit revenue per available seat kilometres  (one of the metrics airlines use to measure success) fell 10.4 per cent.

That was thanks, in part, to the weak pound taking a toll- IAG was hit to the tune of €460m by adverse currency impacts.

Shares in the FTSE 100-listed firm lifted 2.48 per cent to 517p in morning trading.

Fuel unit costs for the year before exceptional items were down 26.8 per cent, while non-fuel unit costs were down 4.1 per cent.

IAG's full year dividend increased 17.5 per cent to 23.5 cents per share, subject to shareholder approval.

Why it's interesting

Last year was tough for the firm, mostly due to the impact of the weak pound following the EU referendum – despite the firm's boss stating that a Brexit vote wouldn't have a "material impact" on the business ahead of the EU referendum.

However, IAG pulled off its expected profits and announced a €500m share buyback programme for 2017. Chief executive Willie Walsh said: "We have great confidence in IAG's future prospects and are increasing cash returns to our shareholders."

At current fuel prices and exchange rates, the firm expects its operating profit for 2017 to show a year-on-year improvement.

IAG announced last month it had whittled down the numbers for its first ever accelerator programme to just four finalists

What IAG said

Walsh said: "For the full year, it was a good performance in a challenging environment".

"Our performance was affected by an adverse currency impact of €460m. In particular, this was due to the weak pound following the UK's EU referendum. However, despite that, we've made good progress and continue to build on all we've achieved in our first five years."

What analysts said

George Salmon, equity analyst at Hargreaves Lansdown, said costs are heading in the right direction.

He said: "While a low oil price helped boost profitability, 2016 was a difficult year for the airlines. As economic uncertainty rocketed, sentiment around the sector plummeted, taking share prices with it. IAG was at the sharp end; after all BA’s premium service (and price) means IAG is more exposed than most should the economy splutter.

"Despite holding a premium position in the sector, IAG has been caught up in the trend for lower fares as increasing supply squeezes pricing. However, with much of the supply coming in to the bottom of the pricing scale, there is an argument to say the group has a degree of insulation that more value-focussed rivals lack.

"While things might be up in the air for the time being, it’s encouraging to see the group making reasonable progress. Costs are heading in the right direction and the dividend is being rebuilt."