British Airways owner cannot cruise above punctuality problems forever

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Online reviews can ruin the day of any consumer-facing chief executive. Pity then International Airlines Group chief executive Luis Gallego. Flight delays and cancellations at IAG’s main profit generator British Airways have doubled to and from London Heathrow, its principal hub, since the Covid pandemic.

Recent Tripadvisor reviews are predictably dire: “Never ever fly with British Airways”, “Excuses, excuses!” are recent examples. But look at a share price chart and it paints a completely different — and far rosier — picture.

Year-to-date IAG is outperforming all other major European airline companies, including budget carrier Ryanair (which still trounces the rest of the market over a five-year view). This kind of share price outperformance from a legacy airlines group is rare. Even so, addressing BA’s punctuality problem must be a priority.

IAG’s market uplift is a tale of two parts. First, BA punctuality aside, it has plenty going for it. Second-quarter profits nearly matched a record set during the same period in 2023, thanks to strong demand in its core north Atlantic, Latin American and European markets. The group, which also owns Iberia, Vueling and Aer Lingus, is less exposed to more troubled Asian routes.

Its balance sheet is in a decent state: Free cash flow generation was up €460mn year on year at June 30 to nearly €3.2bn. Leverage is well below target at 1.1 times. As Lex predicted, it recently restored dividend payments for the first time since the pandemic.

IAG was recently forced to abandon its pursuit of Spain’s Air Europa. But Panmure Liberum’s Gerald Khoo still expects it to benefit from the great European airline roll-up, including competing for Portugal’s TAP.

Its other advantage is that rivals have their own battles. Tourists avoiding Paris during the Olympics hit Air France-KLM; Lufthansa has struggled with labour disputes. Ryanair’s warning in July over lower summer airfares spooked budget airline investors. Barclays’ Andrew Lobbenberg suggests easyJet and Wizz Air are among the most exposed to markets in and around the Middle East, where unrest could have an impact on winter sun bookings.

Clearly, IAG cannot keep cruising above a poor customer experience forever. To be fair, it cannot do much about air traffic control restrictions, which have disrupted 42 per cent of BA flights this year. Delayed deliveries of engines and parts are another cause.

But Gallego will doubtless be aware of BA’s other issues, including complaints about dowdy lounges, frustrating rebooking processes and food quality. IAG is trying to tackle these through a £7bn BA transformation plan.

Speedier delivery will be needed to ensure that customer reviews start to reflect IAG’s investor experience — rather than the other way around.

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