British Airways owner IAG will report its first quarter results on Friday as investor scepticism grows over its latest attempt to purchase Spanish carrier Air Europa.
There has been much consolidation in the market following the pandemic, with Lufthansa taking a 41 per cent stake in ITA Airways, and Air France snapping up a 20 per cent stake in Scandinavian carrier SAS.
But the IAG, the conglemerate which also owns Iberia, Vueling and Aer Lingus, has faced roadblocks in its €400m (£342.6m) bid for Air Europa, which would see it acquire the remaining 80 per cent of the business it does not already own.
Earlier this year, the European Comission issued a statement of objections to IAG’s proposed acquisition, citing potential reductions in competition on Spanish domestic, transatlantic and intrenational short-haul routes.
Liberum analyst Gerald Khoo, who has reiterated a ‘buy’ rating for IAG, said: “While we see the strategic merit of the proposed deal, these could be constrained by the remedies required to secure EC clearance.
“We remain cautious on the prospect of the deal being approved, with the first attempt having been effectively blocked and the EC’s stance on airline industry consolidation appearing to have become less supportive since.”
Despite uncertainty surrounding its bid for Air Europa, IAG’s share price has continued a strong performance following a record financial year in 2023. Shares are up over 14 per cent this year to date.
In February, the company reported a record £3bn annual operating profit, more than double the prior year and investors are looking for any update on demand into the critical summer period.
The IAG has said demand has remained “robust” so far and bookings for the first half of this year were ahead of last year.
Capacity is expected to grow around seven per cent in 2024 but could be impacted from industry-wide supply chain headwinds at Airbus and Boeing.
Other headwinds include global oil prices, which have spiked in response to rising geopolitical tension, particularly in the Middle East. Annual fuel, oil costs and emissions charges increased by €1.4bn year-on-year in 2023, although IAG says it is well hedged.
Top of the list for shareholders though will be an update on the increasingly likely return of a dividend this year, which would be a first since before the pandemic. The FTSE 100 airline operator is reportedly weighing up the prospect, according to sources cited by Bloomberg in April. One key factor for the IAG’s decision will be whether its £7bn investment programme to modernize British Airways, goes smoothly, the report said.