International Consolidated Airlines shares are testing 2-month lows despite what would appear to be a decent set of Q1 results. Eh? What’s not to like about a welcome return to profitability in the seasonally weak first quarter (it’s been 5 years!) and operating performance helped by the Aer Lingus acquisition? Well, what’s disappointing those prepared to look past the headlines is not plans to accelerate cost savings. This is margin-enhancing and good for profits. But not when it comes alongside growth plans/targets being cut to offset weaker than expected bookings after the Brussels terror attacks. Because this suggests concern about the near-term/Q2 outlook which will always trump results, however good they are. After all, share prices quite rightly attribute much more weight to future earnings potential than historical performance. You can’t buy past growth. And even if full year guidance has been maintained it’s still early in the year and the key premium travel segment, which helps subsidise lower prices the further you squeeze yourself towards the back of the, is said to be under pressure and never good for margins. Oil prices nearing 6-month highs are also sure to be weighing on sentiment given the importance of the commodity within the airline’s significant cost base. As always, the devil is in the detail.

Mike van Dulken, Head of Research, 29 Apr