What's going on?

IAG, the parent company of British Airways and a few other European airlines, reported its financial results on Friday and its stock price took off (+5%)!

What does this mean?

The results didn�t appear to be especially exceptional, but the CEO called them �a good performance in a challenging environment.� The tough environment, which is partly the result of oversupply in the airline industry and terrorist attacks in Europe that have undermined tourists� demand, was underlined by a slight fall in revenue. Still, the company was able to make its profit jump almost 10% in 2016 versus the previous year, partly due to lower fuel costs.

Why should I care?

The bigger picture: IAG is one of many businesses that has been hurt by the big fall in the value of the pound.

Since British Airways makes most of its income in pounds but has a lot of costs in other currencies (e.g. landing fees at European airports in euros), it is vulnerable when the pound drops in value. The big fall in the value of the pound following the Brexit vote hit IAG�s profits by hundreds of millions of pounds (cost reductions more than offset this, which is why profits went up nevertheless). Other companies with predominantly UK earnings but costs in other currencies felt similar pain. �


For markets: Transatlantic airlines are doing better than those focused on Europe � so far.

As a result of a huge amount of investment over the past decade, there are, very simply, too many flights between European airports. That�s nice for customers, who can benefit from lower fares, but it�s a problem for the airlines. British Airways gets a lot of its revenue from transatlantic flights, so this is less of an issue for IAG than, say, Ryanair. But competition on transatlantic routes is also heating up (for example, low-cost carrier Norwegian Airlines announced it�s expanding its routes).