Shares in Air France and British Airways owner IAG fall despite record profits, as Middle East threat looms

By Louis Goss

The airline sector was in the spotlight on Friday in Europe, with International Consolidated Airlines and Air France-KLM shares both under pressure as record third quarter profits, were overshadowed by the looming threat of rising fuel prices and war in the Middle East.

Shares in both airlines fell as Air France-KLM (FR:AF) fell short of analysts' expectations and IAG (UK:IAG) warned of the potential impacts of "macroeconomic and geopolitical uncertainties" for the remainder of the year.

IAG stock fell 1.2% after as the British Airways owner warned investors about "the impact of escalating and ongoing geopolitical tensions and conflict in various regions, in particular the Middle East." IAG shares are up 18% compared to 12 months ago.

The conflict between Israel and Gaza poses a growing threat to the world's top airlines due to the risks of higher fuel prices and the closure of airspace in the Middle East.

Both IAG and Air France hiked their full-year fuel price forecasts, from EUR7.4 billion to EUR7.6 billion, and EUR7.5 billion to EUR7.8 billion, respectively.

Air France-KLM stock fell 7% on Friday as the firm failed to meet analysts' estimates, despite surging summer sales. The bumper summer saw the firm generate revenues worth EUR8.66 billion, compared to the EUR8.79 billion forecast by five analysts polled by Factset. Air France-KLM shares are down 34% this year.

The strong sales, in turn, saw Air France-KLM post record operating profits of EUR1.34 billion, marking a 31% increase on the third quarter of 2022.

British Airways owner IAG, by contrast, outstripped analysts' expectations in generating revenues worth EUR8.65 billion, compared to the EUR7.29 billion forecast by 11 analysts.

IAG's strong sales saw the firm, which also owns Aer Lingus and Iberia, post record third quarter operating profits of EUR3 billion, even as a major air traffic control outage over the U.K.'s August bank holiday led to the cancellation of 2,000 flights.

IAG and Air France-KLM are currently Europe's third and fourth largest airlines in terms of passenger numbers, behind Germany's Lufthansa and low cost giant Ryanair.

The results follow Air France-KLM's announcement on Thursday that it had struck a financing deal with Apollo Global Management, to receive EUR1.3 billion from the US fund to strengthen its balance sheet. Apollo previously injected EUR560 million into the airline in July.

-Louis Goss

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10-27-23 0736ET

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