IAG again beats Lufthansa & Air France-KLM in 3Q2015, but unit revenue is weak

Results for 3Q2015 again demonstrated IAG's superior profitability compared with rivals Air France-KLM and the Lufthansa group. IAG's 3Q operating margin of 18.5% was around 6ppts higher than those of the other two. However, all three enjoyed sharp year on year improvements in profits, mainly thanks to lower fuel prices. Both IAG and Lufthansa raised their FY2015 profit targets, but Air France-KLM has not gained sufficient confidence to set a target for the year, in spite of posting the greatest increase in operating profit in 3Q.

The unit revenue environment continued to be weak for Europe's big three legacy airline groups, although it improved slightly in 3Q2015 relative to 2Q. This weakness partly reflects a hazy economic outlook and partly reflects strong levels of competition, particularly on routes to emerging markets. Unit revenue weakness is also a function of management decisions on capacity growth. On the North Atlantic, where capacity growth is tightly contained and competition is less fierce, unit revenue weakness has been more limited.