European airlines: IAG profit cut another sign of cyclical downswing

On 26-Sep-2019 IAG issued a profit warning lowering its 2019 operating result guidance by EUR215 million, or 6%.

IAG blamed the downgrade on three main factors. Two of these were one-offs and broadly known to the world at large, even if not previously fully quantified - namely, the Sep-2019 pilot strike at British Airways and threatened Heathrow strikes.

The third, however, was less expected and highlighted some changes to underlying demand patterns. Since IAG last reiterated its previous 2019 outlook in early Aug-2019, forward booking trends at Vueling and LEVEL have deteriorated to the extent that they are hitting its profit guidance.

IAG had previously maintained its 2019 operating profit guidance - that it would match last year's result - since the beginning of the year, apparently defying the gravity that has weighed on its peers. In Jun-2019 Lufthansa Group lowered its profit target. Although Air France-KLM has not published any profit guidance, its Aug-2019 traffic report revealed a decline in load factor and weaker bookings.

IAG is still forecast to report the highest operating margin among Europe's five leading airline groups in 2019. Nevertheless, its profit warning is further evidence of a downswing in the European airline profit cycle.